SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (Fee required)
For the fiscal year ended July 1, 1994 or
[ ] Transition Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (No fee required)
For the transition period from to
Commission file number 1-4224
AVNET, INC.
(Exact name of registrant as specified in its charter)
New York 11-1890605
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
80 Cutter Mill Road, Great Neck, New York 11021
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (516) 466-7000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock New York Stock Exchange and
Pacific Stock Exchange
6% Convertible Subordinated
Debentures Due 2012 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes / x / No /____/
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein and
will not be contained, to the best of the registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value (approximate) at September 16, 1994 of
the registrant's voting stock held by non-
affiliates........$1,515,251,365.
The number of shares of the registrant's Common Stock (net of
treasury shares) outstanding at September 16, 1994....40,677,889
shares.
DOCUMENTS INCORPORATED BY REFERENCE
___________________________________
Certain portions of the Registrant's definitive proxy statement (to
be filed pursuant to Reg. 14A) relating to the Annual Meeting of
Shareholders anticipated to be held November 16, 1994 are
incorporated herein by reference in Part III of this Report.
PART I
ITEM 1. Business
Avnet, Inc., incorporated in New York in 1955, together with
its subsidiaries (the "Company" or "Avnet"), is the nation's
largest distributor of electronic components and computer products
for industrial and military customers. Electronic component
distributors are a vital link in the chain that connects suppliers
of semiconductors, interconnect products, passives and
electromechanical devices to original equipment manufacturers
(OEMs) who design and build the complete spectrum of electronic
equipment that utilizes the components. Avnet's primary customers
are original equipment manufacturers (OEMs), including military
contractors and the military. Components are shipped either as
received from its suppliers or with assembly or other value added.
Avnet adds value to the components which it sells by customizing
them prior to shipment to meet individual OEM customer
specifications. Avnet also produces or distributes other
electronic, electrical and video communications products.
On July 1, 1993 Avnet acquired Hall-Mark Electronics
Corporation ("Hall-Mark") which, together with its subsidiary
Allied Electronics, Inc., was the third largest electronic
components distributor in North America. In Avnet's fiscal 1993
period Hall-Mark posted $744 million in sales. The acquisition
added about 25,000 customers and additional distribution franchises
to Avnet's Electronic Marketing Group. Except where noted, Hall-
Mark's results are not included in any disclosures related to
fiscal years prior to 1994.
The industry segments in which Avnet operates are as follows:
1. The Electronic Marketing Group is engaged in the
marketing, assembly, and/or processing principally for industrial,
commercial and military use, of electronic and electromechanical
components and computer products.
2. The Video Communications Group is engaged in the
manufacture, assembly and/or marketing of TV signal processing
equipment. The Group's Channel Master division is a leading
manufacturer of TV roof antenna and satellite receive-only
antennas.
3. The Electrical and Industrial Group is engaged in the
distribution of electrical motors and parts, industrial supplies,
maintenance and repair parts and measuring and control devices, and
the production of trophy component parts.
The sales, operating profit and identifiable assets of each of
the three industry segments shown above, prepared in accordance
with Financial Accounting Standards Board Statement No. 14, are
shown in Note 13 to the Company's consolidated financial
statements, which appears in Item 14 of this Report.
The following tables set forth, for each of Avnet's three
fiscal years ended July 1, 1994, June 30, 1993 and June 30, 1992,
the approximate amount of sales and net income of Avnet which is
attributable to each industry segment (after allocation of
Corporate results) shown above:
SALES
(in millions of dollars)
FISCAL YEARS ENDED
July 1, June 30, June 30,
1994 1993 1992
Electronic Marketing $3,161.5 $1,917.3 $1,473.5
Video Communications 199.4 134.0 104.9
Electrical and Industrial 186.8 186.7 180.6
$3,547.7 $2,238.0 $1,759.0
NET INCOME
(in millions of dollars)
FISCAL YEARS ENDED
*July 1, June 30, June 30,
1994 1993 1992
Electronic Marketing 94.6 $67.0 $47.3
Video Communications 6.1 1.8 1.8
Electrical and Industrial 1.4 .3 1.4
$102.1 $69.1 $50.5
* The 1994 net income shown above for the Electronic Marketing and
the Electrical and Industrial Groups are before special charges
of $12.3 million and $1.7 million after tax, respectively, for
restructuring and integration costs and the impact of the
retroactive change in U.S. federal income tax rates. The
consolidated net income shown above for 1994 also does not
include the $2.8 million after-tax charge for the cumulative
effect of the change in method of accounting for income taxes.
In fiscal 1994, Avnet recorded a special charge of $22.7
million ($13.5 million after-tax) primarily for restructuring and
integration costs associated with the acquisition of Hall-Mark. As
is typical in an acquisition of this type there were many duplicate
costs present at the acquisition date. The duplicate costs
included in Avnet's special 1994 charge relate to excess personnel
performing essentially the same functions, multiple sales offices
in close proximity to one another that have been or will be
vacated, excess warehouse and administrative office capacity,
excess furniture, fixtures, machinery and equipment, redundant
computer hardware and software and other items. In addition, there
were many Avnet and Hall-Mark vendors which supplied
substantially the same products resulting in additional costs of
inventorying duplicate parts. As a result, the Company found it
necessary to terminate a number of supplier relationships even
though this caused the value of certain inventory to be non-
realizable in the ordinary course of business. In eliminating some
of these duplicate costs, and in order to most effectively adopt
and assimilate the two companies' best operating and administrative
practices, a number of employee terminations and relocations were
also required. Accordingly, the special charge recorded by the
Company included accruals for severance, real and personal property
lease terminations, relocation of employees, inventory adjustments
related to supplier terminations and other items.
Electronic Marketing Group
The Electronic Marketing Group continues to be the
dominant group in Avnet, accounting for 89% of Avnet's sales and
93% of its earnings, before the impact of special charges described
above, in fiscal 1994.
Hamilton Hallmark, Avnet Computer Marketing Group and
Time Electronics are the dominant operations in the Group,
accounting for 83% of the Group's 1994 sales. The remaining 17% of
sales was accounted for by Allied Electronics and by Avnet Europe
consisting of Avnet Access, Avnet Time UK, Avnet Composants,
Avnet Time France, Avnet Nortec, Avnet E2000, Avnet Time Germany,
Avnet Adelsy and Avnet DeMico. Avnet Adelsy and Avnet DeMico, two
Italian electronic components distributors with estimated aggregate
annual sales of about $50 million, were acquired in 1994.
As of July 1, 1994 the Group had about 189 locations in
the United States, Canada and Europe, many of which contain sales,
warehousing and administrative functions for multiple business
units. In addition, the Group has a small number of stores in
customers' facilities.
Hamilton Hallmark is a distributor of semiconductors,
computer products, connectors, passives and electromechanical
products for industrial, commercial and military use. It is
franchised by the top five United States semiconductor
manufacturers: Advanced Micro Devices, Intel, Motorola, National
Semiconductor and Texas Instruments. Hamilton Hallmark's customers
are principally computer, telecommunications and aerospace original
equipment manufacturers (OEMs). The percentage of total revenue
contributed by each product line appears on page 19 of this Report.
Hamilton Hallmark's sales for fiscal 1994 totaled $1.822 billion,
accounting for 58% of Electronic Marketing Group sales. The
following are its principal suppliers.
1. Semiconductors: Advanced Micro Devices, Analog Devices,
Harris, Hewlett-Packard, Integrated Device Technology,
Intel, LSI Logic, Motorola, Micron Semiconductor,
National Semiconductor, Philips/Signetics, Texas
Instruments and Xilinx.
2. Computer Products: Adaptec, Connor Peripherals, Intel,
Maxtor, Seagate and SyQuest.
3. Connectors: AMP, Amphenol/Bendix, Augat, Bendix,
Dale/Vishay, Matrix, Molex, Spectra Strip, and 3M.
4. Passives and Electromechanical Devices: Bourns,
Dale/Vishay, Globe, Kyocera/AVX, Hewlett-Packard,
Philips and Vishay/Sprague.
Avnet Computer Marketing is an international distributor
of computer products. As a result of the acquisition of Hall-Mark
Electronics, two independent business units, Avnet Computer and
Hall-Mark Computer Products, now operate together as the Avnet
Computer Marketing Group. Avnet Computer sells computer systems
and products primarily to end users. Hall-Mark Computer Products
concentrates on sales of peripherals and components to the reseller
channel. Avnet Computer Marketing Group's sales for fiscal 1994
totaled $498 million, accounting for 16% of Electronic Marketing
Group sales. The following are Avnet Computer Marketing Group's
principal suppliers:
Apple, AT&T(NCR), Data General, Diamond Flower, Digital
Equipment, Exabyte, Hewlett-Packard, IBM(OBI), Intel, Kodak,
Maxtor, Micropolis, Motorola UDS, Multitech, Okidata, Seagate
Technology, Standard Microsystems, Tecmar, Texas Instruments,
3COM, UNISYS and Wyse Technology.
Time Electronics is the world's leading distributor of
interconnect products including value-added connectors, electro-
mechanical and passive components and cable assembly services.
Time also distributes semiconductors. Time's customers are
principally industrial and military/aerospace original equipment
manufacturers (OEMs). It accounted for 9% of the Electronic
Marketing Group's sales in fiscal 1994. The following are Time's
principal suppliers:
1. Connectors: AMP, Augat, ELCO, G&H Technology, ITT
Cannon, Kings, Matrix Science, Molex, Pyle-National,
Robinson Nugent, 3M and T&B Ansley.
2. Passives and Electromechanical Devices: AVX, Bourns,
Cherry, Communications Instruments, CTS, Cutler-Hammer,
Globe, Grayhill, Leach, Murata-Erie, NDK America,
Nichicon, Philips, Teledyne, Valor and Vishay.
3. Semiconductors: Atmel, Mitel, Mosel-Vitelic, Motorola,
National Semiconductor, Powerex and Wafer-Scale, WSI or
wafer.
Allied Electronics, Inc. is a broad line industrial
distributor of active and passive electronic components, test
equipment and electronic equipment which it sells by means of its
catalog and telesales operations. Allied's principal customers are
maintenance and repair organizations (MRO) as well as research and
development and engineering departments of original equipment
manufacturers (OEMs). Allied's fiscal 1994 sales represented 2% of
Electronic Marketing Group sales.
The Electronic Marketing Group's activities in Europe are
conducted by Avnet EMG Europe, with operations in all five major
European geographic markets. Avnet created its European operations
through a series of acquisitions beginning in June 1991 with Avnet
Access (formerly known as The Access Group), a United Kingdom
electronics distributor based in Letchworth, England. In April
1992, the Company acquired Avnet Composants (formerly known as
FHTec Composants), a French electronics distributor based in
Chatillon, France. In July 1992, the Company acquired Avnet Nortec
(formerly known as The Nortec Group), the leading Scandinavian
electronics distributor with operations in Sweden, Norway, Denmark,
Finland and Estonia. In January 1993, the Company acquired Avnet
E2000 (formerly known as Electronic 2000 AG) a leading German
electronics distributor with operations in Germany, Austria and
Switzerland. In September 1993, the Company acquired Avnet Adelsy
(formerly known as The Adelsy division of General Music S.p.A.) an
Italian electronics distributor based in Milan, Italy and in March
1994, the Company acquired Avnet DeMico (formerly known as DeMico
S.p.A.) another Italian electronics distributor based in Milan,
Italy. In addition to the acquisitions described above, the Company
has created Avnet Time operations in certain locations which
specialize in interconnect products including value-added
connectors, electromechanical and passive components and cable
assembly services. There are currently Avnet Time locations in the
U.K., France and Germany. Avnet Europe's sales for 1994 accounted
for 15% of Electronic Marketing Group sales.
Avnet Access concentrates on the sale of semiconductors,
and its principal suppliers are as follows:
Advanced Micro Devices, Analog Devices, Harris, Hewlett-
Packard, Integrated Device Technology, Intel, Motorola,
National Semiconductor, Philips, SGS Thompson, Texas
Instruments, Toshiba and Xilinx.
In September 1992, Avnet Time commenced operations in the
United Kingdom as a distributor of connectors and passives and
electromechanical devices with the following principal suppliers:
1. Connectors: AMP, Amphenol, Augat, ITT Cannon, Molex,
Thomas & Betts and 3M.
2. Passives and Electromechanical Devices: AVX, Bourns,
Murata, Philips, Schaffner and Vishay.
The following are the principal product lines and
principal suppliers of Avnet Composants and its Avnet Time unit:
1. Semiconductors: Advanced Micro Devices, Analog Devices,
Dallas, Harris, Hewlett-Packard, Integrated Device
Technology, Intel, Motorola, National Semiconductor,
Philips, Texas Instruments, Toshiba, SGS Thompson and
Xilinx.
2. Connectors: AMP, Amphenol, Augat, Berg, Molex, Panduit,
Spectrum Control and 3M.
3. Passives and Electromechanical Devices: AVX, Bourns,
Grayhill, Hewlett-Packard, IEE, Kinseki, Optek, Optrex,
Philips, Quality Technology, Thermalloy and Toshiba.
Avnet Nortec's principal product lines and principal
suppliers are:
1. Semiconductors: Advanced Micro Devices, Fujitsu,
Hewlett-Packard, Integrated Device Technology, Intel,
Motorola, National Semiconductor , Texas Instruments and
Quality Technology.
2. Computer Products: Intel and Motorola.
3. Passives and Electromechanical Devices: Optrex and
Schaffner.
The following are the principal product lines and
principal suppliers of Avnet E2000 and its Avnet Time unit:
1. Semiconductors: Altera, Advanced Micro Devices,
Integrated Device Technology, Intel, Lattice, Motorola,
National Semiconductor, Philips, Siemens, Texas
Instruments and Xilinx.
2. Connectors: Augat, ITT Cannon and Molex.
3. Passives and Electromechanical devices: AVX, Bourns and
Philips.
Avnet Adelsy and Avnet DeMico's principal product lines
and principal suppliers are:
1. Semiconductors: Advanced Micro Devices, Analog Devices,
Hewlett-Packard, Integrated Device Technology, Intel,
Lattice, Motorola, National Semiconductor, Philips,
Texas Instruments, Toshiba and Xicor.
2. Computer Products: Analog Devices, Digital, Standard
Microsystems.
Subsequent to the end of fiscal 1994, Avnet acquired Pen-
Stock, Inc. ("Penstock"), a California-based communications
products specialist which distributes and adds value to radio
frequency/microwave components and devices. For its latest fiscal
year ended March 31, 1994, Penstock had sales of $45 million, up
from $34 million in the prior year.
Most of the Electronic Marketing Group's product lines
are covered by nonexclusive distributor agreements with suppliers,
cancelable upon 30 to 180 days notice. Most of these agreements
provide for the periodic return to the supplier of obsolete
inventory and the return of all standard inventory upon termination
of the contract.
All the items sold by the Group are in highly competitive
fields. With regard to many of its product lines, the Group may be
in competition not only with other distributors but also with its
own sources of supply. Central to the business of Avnet and the
distribution industry as a whole is the carrying of a significant
amount of inventory to meet rapid delivery requirements of
customers. Avnet enhances its competitive situation by offering a
variety of value added services in which it performs services
and/or processes tailored to individual customer specifications and
business needs such as point of use replenishment, testing,
assembly and material management.
Video Communications Group
The Video Communications Group, which consists of the
Channel Master companies located in the U.S. and the United
Kingdom, principally designs, develops and manufactures TV signal
processing equipment. Its sales in 1994 were $199.4 million or
approximately 6% of Avnet's consolidated revenues.
Channel Master is primarily a manufacturer/distributor
of TV antennas, TV rotators and home satellite TV signal receiving
and descrambling systems. Its products are used by home TV viewers
and the SMATV (Satellite Master Antenna TV) and CATV (Community
Antenna TV -- also known as cable TV) industries. Channel Master
produces antennas for DBS (Direct Broadcast Satellite) projects
worldwide. Channel Master also operates a small cable TV system in
and around Johnston County, North Carolina. Channel Master has two
principal manufacturing facilities, one each in the U.S. and
England. Channel Master's Canadian operation was closed in fiscal
1993.
Over the 1990 through 1993 fiscal-year period, Avnet
closed down its audio equipment and satellite receiver
manufacturing businesses in the Far East. However, Channel Master
continues to manufacture certain proprietary TV signal amplifying
and electronic equipment in Taiwan.
The required materials used in manufacturing Channel
Masters' products are purchased from many suppliers (except for TV
rotators, which are purchased from a single supply source).
Channel Master has no long-term supply contracts.
All the items sold by Channel Master are in highly competitive
fields.
Electrical and Industrial Group
Avnet's Electrical and Industrial Group operates primarily in
the electrical and electronic industrial equipment distribution
industry and in the industrial maintenance and repair fields. The
Group currently consists of three units, Brownell Electro, Avnet
Industrial and Freeman Products. The Group's 1994 sales of $186.8
million represented 5% of Avnet's total sales.
The Electrical and Industrial Group underwent a major
restructuring and re-engineering of its operations during 1994.
Brownell Electro was substantially reorganized to focus on the
motor repair and original equipment manufacturers (OEMs) markets.
Its Instrument and Controls Division (ICD) and its Lincoln Controls
unit were combined with Mechanics Choice to form a new business
unit named Avnet Industrial which is focused on the Maintenance and
Repair Organization (MRO) market. Except for certain products
which are impractical to centralize, all warehousing for the
Brownell and Avnet Industrial units is being consolidated into two
regional distribution centers, one in Louisville, KY and one in
Phoenix, AZ.
Brownell Electro and Avnet Industrial together with their
various divisions operate under the Brownell Electro, Inc.
subsidiary of Avnet (hereinafter referred to as Brownell).
Brownell distributes electric motors, electrical insulation
and magnet wire and supplies parts, such as bearings, switches and
electrical tapes for the rebuilding and replacement of industrial
air conditioning, refrigeration, heating, ventilation and appliance
motors through a network of 28 facilities throughout the U.S. Most
of these facilities have been retained to service local customers,
but Brownell has centralized certain administrative, technical,
sales support and service functions into 6 regional centers or
"hubs". Its electric motors are sold principally under its Leland-
Faraday trademark. In addition, electric motors and parts made by
the major electric motor and control manufacturers are stocked,
delivered and serviced from Brownell's distribution and service
centers. It also distributes limit switches, interval timers,
photoelectronics, industrial display and control instruments,
oscilloscopes and analog and digital meters and it maintains
laboratories and service stations for their repair and
recalibration. In addition, Brownell, through its Avnet Industrial
division, supplies the industrial, commercial, institutional,
agricultural, governmental, mining and utility markets with a broad
line of industrial maintenance and factory supplies, many under its
Mechanics Choice trademark.
Freeman Products, a trophy manufacturing business, has five
sales facilities across the United States. Freeman Products
manufactures trophy parts, supplying about 5,000 assembler/dealers
in the U.S. and abroad. Freeman pioneered the concept of marketing
interchangeable trophy parts to local assemblers to eliminate the
cost of inventorying assembled trophies.
In August 1993, the business of I.W. Rice & Co., Inc., an
importer of giftware, was sold.
The products which are distributed by this Group compete with
the products of other companies which sell parts to the industrial
and repair markets and with the product lines of many local and
national distributors and jobbers.
Number of Employees
At July 1, 1994, Avnet had approximately 8,000 employees.
ITEM 2. Properties
As of July 1, 1994, Avnet owned or leased approximately
3,890,000 square feet of space for its principal offices,
warehouse, distribution, assembly, manufacturing, engineering and
research facilities. Some of this space, as a result of the Hall-
Mark acquisition, is excess and certain costs associated therewith
have been provided for in the financial statements. Approximately
55% of the space was used by the Electronic Marketing Group. The
Video Communications Group used approximately 18% of the space, the
Electrical and Industrial Group used approximately 26% of the space
and the Corporate Office used about 1% of the space. Avnet also
owned or leased approximately 54,000 square feet of space which was
subleased to others. Of this total space owned or leased,
approximately 90% was located in the United States.
ITEM 3. Legal Proceedings
In the opinion of management, based on all known facts, there
are no legal proceedings which the Company is required to report.
However, as previously reported, the Company is a potentially
responsible party ("PRP") or has received claims for indemnity in
several environmental cleanups under the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA").
In particular, Avnet is one of approximately 14 PRPs subject to an
administrative order issued by the Environmental Protection Agency
("EPA") pursuant to section 106 of CERCLA in connection with the
cleanup of a National Priorities List site in North Smithfield,
Rhode Island. Avnet's connection with the Rhode Island site arises
from the alleged disposal of hazardous material at the site by its
former Miller Electric and Carol Cable Company divisions which were
sold in 1981. Also, real estate owned by the Video Communications
Group in Oxford, North Carolina is listed on the EPA's National
Priorities List, and the Company and the prior owner of the site
have entered into a Consent Decree with the EPA pursuant to which
the parties have agreed to clean up the site. Additional
information about this site and other sites is set forth on pages
22 - 23 of this report.
ITEM 4. Submission of Matters to a Vote of Security Holders
None to be reported.
ITEM 4A. Executive Officers of the Company
The current executive officers of the Company are:
Name Age Office
Leon Machiz 70 Chairman of the Board, Chief Executive
Officer and Director
Roy Vallee* 42 President, Chief Operating Officer, Vice
Chairman of the Board and Director
Sylvester D. Herlihy 67 Senior Vice President, Secretary and
Director
Stanley Benerofe 61 Senior Vice President
David R. Birk 47 Senior Vice President and General
Counsel
Anthony T. DeLuca 44 Senior Vice President and Chief
Information Officer
Burton Katz 52 Senior Vice President
Raymond Sadowski 40 Senior Vice President, Chief Financial
Officer and Assistant Secretary
Joseph W. Semmer 57 Senior Vice President
Keith Williams 46 Senior Vice President
John A. Carfora 48 Vice President
Steven C. Church 45 Vice President
John T. Clark 40 Vice President
Patrick Jewett 49 Vice President
Donald E. Sweet 57 Vice President
Morton M. Vogel 64 Vice President
Richard Ward 54 Vice President
John F. Cole 52 Controller
Stephanie A. Wagoner 35 Treasurer
Bruce Evashevski 51 Electronic Marketing Group Senior Vice
President of Finance
Mr. Machiz has been Chairman of the Board and Chief Executive
Officer since December 1988.
Mr. Vallee became a Vice President of Avnet in November 1989,
Senior Vice President and director of its worldwide electronics
operations in July 1990, a member of Avnet's Board of Directors in
November 1991, President and Chief Operating Officer in March 1992
and Vice Chairman of the Board in November 1992.
For more than the past five years, (1) Mr. Herlihy has been
principally engaged as an executive of the business operations
presently conducted by Avnet's Video Communications Group, (2)
Messrs. Church, Clark, Jewett, Katz, Sweet and Ward have been
principally engaged as executives of certain of the business
operations presently conducted by Avnet's Electronic Marketing
Group and (3) Mr. Benerofe has been principally engaged as an
executive of certain of the business operations presently conducted
by Avnet's Electrical and Industrial Group.
For more than the past five years, (1) Mr. DeLuca has been
Vice President and, since November 1990, Senior Vice President and
Chief Information Officer and (2) Mr. Vogel has been Vice
President, Risk Management.
During the past five years, Mr. Birk has been Vice President
and General Counsel, and since November 1992, Senior Vice
President.
Mr. Carfora has been Vice President, Taxes since November
1991. Prior to November 1991, he was Avnet's Director of Taxes.
Mr. Sadowski became Senior Vice President in November 1992 and
Chief Financial Officer in February 1993. He was previously
Avnet's Vice President and Controller.
Before becoming Avnet's Controller in February 1993, Mr. Cole
served for more than five years as Controller of Avnet's Brownell
Electro, Inc. subsidiary.
Mr. Williams was the Managing Director of The Access Group,
Ltd. for more than five years before Avnet acquired this U.K.
corporation in June 1991. He became President of Avnet EMG Europe
and Vice President of Avnet in November 1992, Director of Avnet's
International Operations in October 1993, and he became a Senior
Vice President of Avnet in November 1993.
Before becoming Avnet's Treasurer in February 1993, Ms.
Wagoner served as the Assistant Treasurer.
During the past five years before joining Avnet's Electronic
Marketing Group on July 1, 1993,(1) Mr. Semmer, was President,
Director and (from 1989) Chief Executive Officer of Hall-Mark
Electronics Corp., and (2) Mr. Evashevski was Vice President,
Treasurer and Chief Financial Officer and Director, of Hall-Mark
Electronics Corp. Mr. Semmer became a Vice President of Avnet on
September 22, 1993 and a Senior Vice President of Avnet in March
1994.
Officers of the Company are generally elected each year at the
meeting of the Board of Directors following the annual meeting of
shareholders and hold office until the next such annual meeting or
until their earlier death, resignation or removal.
PART II
ITEM 5. Market for Registrant's Common Equity
and Related Stockholder Matters
Market price per share.
The Company's common stock is listed on the New York Stock
Exchange and the Pacific Stock Exchange. Quarterly market prices
(as reported in the consolidated reporting system for issues listed
on the New York Stock Exchange) for the last two fiscal years were:
Fiscal 1994 1993
Quarters High Low High Low
1st 42 1/4 31 1/4 29 1/2 26 3/4
2nd 41 5/8 34 1/2 36 27 7/8
3rd 45 36 3/4 37 29 3/4
4th 40 30 3/4 34 7/8 29
Record Holders.
As of September 16, 1994, there were approximately 6,068
record holders of Avnet's common stock.
Dividends declared per share.
The declared cash dividend on the common stock was 15
cents per share during each quarter in fiscal 1994 and 1993.
ITEM 6. Selected Financial Data*
(In $ millions except for per share and ratio data)
Fiscal Year Ended
July 1, June 30, June 30, June 30, June 30,
1994 1993 1992 1991 1990
Income:
Sales $3,547.7 $2,238.0 $1,759.0 $1,740.8 $1,751.3
Gross profit 696.1 486.8 408.3 422.5 438.9
Income taxes 66.7 45.1 32.9 38.4 42.2
Earnings 85.3(b) 69.1 50.5 61.6 56.5(a)
Financial Position:
Working capital 888.0 803.1 848.9 858.9 843.8
Total assets 1,787.7 1,247.3 1,242.7 1,181.5 1,157.5
Long-term debt 303.1 106.6 175.3 201.1 201.9
Shareholders'
equity 1,108.5 868.2 837.2 801.4 769.7
Per Share:
Earnings 2.09(b) 1.91 1.42 1.72 1.57(a)
Dividends .60 .60 .60 .60 .60
Book value 27.26 24.35 23.56 22.60 21.46
Ratios:
Profit margin
on sales 2.4%(b) 3.1% 2.9% 3.5% 3.2%(a)
Return on equity 8.0%(b) 8.1% 6.2% 7.9% 7.5%(a)
Return on capital 7.0%(b) 7.6% 5.8% 7.1% 6.8%(a)
Quick 1.7:1 2.1:1 2.7:1 3.3:1 3.2:1
Working capital 3.4:1 3.9:1 4.7:1 5.8:1 5.5:1
Long-term debt to
capital 21.5% 10.9% 17.3% 20.1% 20.8%
(a) After $9.8 ($.27 per share) net loss on the disposition of one and
restructuring of two operations.
(b) After special charges of $16.8 ($.41 per share) for (i) restructuring
and integration charges ($13.5 or $.33 per share), (ii) the retroactive
impact of the change in U.S. tax rates ($0.5 or $.01 per share) and
(iii) the cumulative effect of a change in the method of accounting for
income taxes ($2.8 or $.07 per share).
* The selected financial data shown above for fiscal years prior to 1994
does not include data for Hall-Mark.
ITEM 7. Management's Discussion and Analysis
For an understanding of the significant factors that
influenced the Company's performance during the past three years,
the following discussion should be read in conjunction with the
consolidated financial statements, including the related notes, and
other information appearing elsewhere in this report.
On July 1, 1993, Avnet completed its acquisition of all of the
stock of Hall-Mark Electronics Corporation, including its wholly-
owned subsidiary Allied Electronics, Inc. (together referred to as
"Hall-Mark"), pursuant to an Agreement and Plan of Merger dated
April 20, 1993. Prior to the acquisition, Hall-Mark was the
nation's third largest distributor of electronic components.
Except where noted, Hall-Mark is not included in the discussion and
analysis relating to fiscal years 1993 and 1992.
Results of Operations
Results of operations during the last three years are shown on
page four of this report. An analysis of the results for those
years follows.
Consolidated
Consolidated sales were $3.548 billion in 1994 or 59% higher
than the $2.238 billion in 1993 and 19% higher if Hall-Mark's
comparable period sales of $744 million were included in Avnet's
fiscal 1993 results. This increase in consolidated sales was due
primarily to sales growth at Hamilton Hallmark, Computer Marketing,
the Electronic Marketing Group's European operations and Channel
Master. Sales were higher during each quarter of 1994 as compared
with the corresponding quarter of 1993, as adjusted to include the
sales of Hall-Mark on a proforma basis. Except for the third
quarter of 1994, when average daily sales were slightly below those
for the second quarter, average daily sales, including Hall-Mark on
a proforma basis in 1993 and 1992, have increased in each quarter
since the second quarter of 1992.
Consolidated sales of $2.238 billion in 1993 were 27% higher
than the $1.759 billion in 1992. Of the $479 million sales
increase, $150 million was contributed by Avnet Nortec and Avnet
E2000, the Scandinavian and German operations which were acquired
during 1993. Although the sales in 1992 benefitted from the
acquisitions of Avnet Access and Avnet France, they were negatively
affected by the economic slowdown in the U.S.
Gross profit margins were 19.6%, 21.8% and 23.2% in 1994, 1993
and 1992, respectively. This downward trend is due primarily to
increased sales of microprocessors, which have lower gross margins,
and the competitive environment in the electronic distribution
marketplace.
During the first quarter of 1994, the Company recorded a
special charge of $22.7 million ($13.5 million after-tax) for
restructuring and integration costs associated with the July 1,
1993 acquisition of Hall-Mark and the restructuring of the
Electrical and Industrial Group. These costs included accruals for
severance, real and personal property lease terminations,
relocation of employees, inventory adjustments related to supplier
terminations and other items. Although operating expenses in
absolute dollars were sequentially higher during the last three
years, they decreased significantly as a percentage of sales.
Excluding the 1994 special charge referred to above, the Company
reduced operating expenses as a percentage of sales to 14.3% in
1994 as compared with 17.2% and 19.3% in 1993 and 1992,
respectively. This improvement was due to the Company's continued
efforts toward improving operating efficiencies and the economies
of scale and synergies resulting from the acquisition of Hall-Mark.
Investment and other income declined to $4.8 million in 1994
compared with $20.4 million and $27.2 million in 1993 and 1992,
respectively. The substantial decrease in 1994 was due primarily
to a reduction in investment income as the Company liquidated its
marketable securities portfolio to fund a portion of the
acquisition cost of Hall-Mark. The decrease in 1993 as compared
with 1992 was due primarily to a reduction in investment income,
losses on foreign currency fluctuations and expenses incurred in
connection with the retirement of the Company's 8% Convertible
Subordinated Debentures including the premium paid and the write-
off of deferred loan costs. Investment income in 1993 was lower
than in 1992 as a result of lower interest rates and a decrease in
average funds available for investment as funds were used for the
redemption of debentures and acquisition of European operations,
partially offset by gains on the sales of marketable securities.
The Company's effective tax rate before taking into account
the cumulative effect of the change in method of accounting for
income taxes was 43.1% in 1994 as compared with 39.5% and 39.4% in
1993 and 1992, respectively. This increase was due primarily to
the impact of the non-deductible amortization of goodwill, which
amount rose significantly as a result of the Hall-Mark acquisition,
the 1% increase, from 34% to 35%, in the U.S. federal statutory tax
rate and the $0.5 million recorded for the impact of the
retroactive increase in federal income tax rates enacted in fiscal
1994 as it relates to fiscal 1993 income.
Net income in 1994 before special charges was a record $102.1
million as compared with the $69.1 million and $50.5 million in
1993 and 1992, respectively. During the first quarter of 1994, the
Company recorded special charges of $16.8 million after tax. These
charges (after-tax) included $13.5 million for restructuring and
integration costs associated with the acquisition of Hall-Mark and
the restructuring of the Electrical and Industrial Group described
above and $0.5 million for the impact of the retroactive increase
in federal income tax rates enacted in fiscal 1994 as it relates to
fiscal 1993 income. Additionally, in the first quarter of 1994,
the Company adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 109 "Accounting for Income Taxes"
and recognized a charge for the cumulative effect of the change in
accounting principle in the amount of $2.8 million. After those
special charges, net income in 1994 was $85.3 million.
Although sales during the summer months generally tend to be
lower than in the spring quarter, sales during the first two months
of fiscal 1995 were comparable to the first two months of the
immediately preceding quarter and higher than in the comparable
period in fiscal 1994. Average sales per day during the first two
months of fiscal 1995 were also higher than the average daily sales
in the first two months of the immediately preceding quarter and in
the comparable period last year.
As the Company has continued to increase its investment in
foreign operations, the impact associated with the volatility of
foreign currency exchange rates has become more apparent. In 1994,
the translation into U.S. dollars of the financial statements of
the Company's foreign subsidiaries resulted in a $4.6 million
credit and in 1993 a $20.1 million charge which, in accordance with
generally accepted accounting principles, were recorded directly to
shareholders' equity. The credit in 1994 was due primarily to
strengthening of the French and Swedish currencies against the U.S.
dollar and the charge in 1993 was due primarily to the weakening of
the U.K., French and Swedish currencies against the U.S. dollar.
Electronic Marketing
The Electronic Marketing Group's sales in 1994 were $3.162
billion, up 65% as compared with sales of $1.917 billion in 1993
and up almost 19% when 1993 sales are adjusted proforma to include
Hall-Mark's comparable period sales. The increase in sales in 1994
was due to growth at Hamilton Hallmark, primarily as a result of
the acquisition of Hall-Mark, and growth in the Computer Marketing
and European operations. Sales of Hamilton Hallmark, the largest
unit in the Group, and Computer Marketing were up 13% and 15%,
respectively, as compared with 1993 sales adjusted to include Hall-
Mark on a proforma basis. The Group's European operations had
sales of almost $500 million, up over 60% as compared with 1993.
Excluding the 1994 sales of Avnet Adelsy and Avnet DeMico, which
were acquired in 1994, and the 1994 and 1993 sales of Avnet E2000,
which was acquired in mid-1993, sales for the Group's European
operations in 1994 were up over 40% as compared with 1993. Allied
Electronics, which was acquired as part of the Hall-Mark
acquisition, experienced a 25% increase in sales in 1994 as
compared with 1993. Sales of Time Electronics were up almost 7%
during the same period.
The Group's 1993 sales were up 30% compared with 1992 sales of
$1.474 billion. The $443 million sales increase in 1993 included
$150 million from Avnet Nortec and Avnet E2000 which were acquired
during that year. Sales of Hamilton/Avnet Electronics were up 23%
and sales of the European units, excluding Avnet Nortec and Avnet
E2000, were up over 150% in 1993 as compared with 1992, while sales
of Avnet Computer and Time Electronics were slightly higher.
The Electronic Marketing Group increased its share of
consolidated sales to 89% in 1994 as compared with 86% and 84% in
1993 and 1992, respectively.
In 1994, sales of semiconductors, connectors and computer
products were higher and sales of passives and electromechanical
devices were lower than in 1993, adjusted to include Hall-Mark on
a proforma basis. In 1994, semiconductor, computer products,
connector, and passive and electromechanical sales represented
64%, 18%, 10% and 8%, respectively, of Group sales as compared with
59%, 18%, 11% and 12%, respectively, in 1993 including Hall-Mark's
sales on a proforma basis.
The Electronic Marketing Group's gross profit margins were
lower by 2% in 1994 as compared with 1993, which in turn were lower
by about 1.1% than in 1992. This reduction was due primarily to
competitive pressures and sales of lower margin microprocessors
which continued to increase. However, increased operating
efficiencies due to the economies of scale and synergies resulting
from the Hall-Mark acquisition and the Company's continued emphasis
on cost reduction resulted in a decrease in operating expenses
(before special charges) as a percentage of sales. These
sequential decreases in operating expenses as a percentage of sales
more than offset the decrease in gross margins in 1994 as compared
with 1993 and in 1993 as compared with 1992. The Group's effective
tax rate increased due primarily to the impact of the increase in
the non-deductible amortization of goodwill from the Hall-Mark
acquisition and to the 1% increase in the U.S. federal statutory
tax rate. Net income of the Group in 1994 was $94.6 million before
special charges as compared with $67.0 million and $47.3 million in
1993 and 1992, respectively. The Group's net profit margins before
special charges were 3.0%, 3.5% and 3.2% in 1994, 1993 and 1992,
respectively.
In the first quarter of 1994, the Group's results were
negatively impacted by special charges of $11.8 million after-tax
for restructuring and integration costs associated with the
acquisition of Hall-Mark and $0.5 million for the impact of the
retroactive increase in federal income tax rates enacted in 1994 as
it relates to 1993 income. Net income in 1994 after the $12.3
million after-tax special charges was $82.3 million.
Video Communications
Group sales in 1994 were $199.4 million compared with $134.0
million and $104.9 million in 1993 and 1992, respectively, and
represented about 6% of consolidated sales in each of those three
years. The $65.4 million or 49% increase in 1994 sales and the
$29.1 million or 28% increase in 1993 sales were primarily the
result of a significant increase in the sales of modular
descrambler equipment by the Group's Channel Master operation,
offset in 1993 by a decrease in sales by the Group's Far East
operations as a result of the Company's decision in the second
quarter of 1993 to shut down those operations. Gross profit
margins in 1994 were lower than in 1993 and 1992 due to the
increase in sales of lower margin descrambler equipment in each
year. Operating expenses as a percentage of sales also trended
downward in the last three years as a result of the significant
increase in sales.
Net income of the Group in 1994 was $6.1 million compared with
$1.8 million in 1993 (after a net after-tax charge of $1.15
million related to the shutdown of the Group's Far East operations)
and $1.8 million in 1992. The Group's net profit margins were
3.0%, 1.3% and 1.7% in 1994, 1993 and 1992, respectively.
Electrical and Industrial
Group sales in 1994 were $186.8 million compared with $186.7
million and $180.6 million in 1993 and 1992, respectively. Group
sales represented about 5% of consolidated sales in 1994 as
compared with 8% and 10% in the prior two years, respectively. The
sales of each of the Group's operations were basically flat in 1994
as compared with 1993.
Net income of the Group was $1.4 million in 1994 before a $1.7
million after-tax restructuring charge as compared with $0.3
million and $1.4 million in 1993 and 1992, respectively. The
Group's gross profit margin in 1994 was about 0.7% lower than in
1993 which was about 1.8% lower than in 1992. The Group's net
profit margins before restructuring charges were 0.7%, 0.2% and
0.8% in 1994, 1993 and 1992, respectively.
In the first quarter of 1994, the Group's results included the
$1.7 million after-tax charge referred to above for the
restructuring of the Brownell Electro and Mechanics Choice
operations. Brownell Electro was substantially reorganized to
focus on the motor repair and original equipment manufacturer (OEM)
markets. Brownell Electro's Instruments and Controls Division and
its Lincoln Controls unit were combined with Mechanics Choice to
form a new business unit named Avnet Industrial which is focused on
the maintenance and repair organization (MRO) market. After the
$1.7 million after-tax restructuring charge, the Group had a net
loss of $0.3 million in 1994.
Liquidity and Capital Resources
Over the last three years, cash generated from income before
depreciation and other non-cash items amounted to $299 million.
During that period, $150 million was used for working capital needs
resulting in $149 million of net cash flows from operations. Of
that $149 million, $131 million, net, was needed for other normal
business operations including purchases of property, plant and
equipment, dividends and other immaterial items. The $18 million
balance of cash generated, together with $194 million raised from
additional borrowings, $250 million generated from the liquidation
of interest-bearing investments and a portion of the available cash
at the beginning of the three-year period, was used for
acquisitions, the redemption and repurchase of debentures and the
repayment of other debt totalling $504 million.
In 1994, the Company generated $124 million from income before
depreciation and other non-cash items, and used $102 million for
working capital needs resulting in $22 million of net cash flows
from operations. The use of funds for working capital was
significantly higher than in prior years due primarily to a large
increase in receivables as a result of a 59% increase in sales in
1994 as compared with 1993. In addition, the Company used $49
million for other normal business operations including purchases of
property, plant and equipment, dividends and other immaterial
items. This $27 million of cash needed for normal business
operations and the $333 million of cash used for the acquisitions
of Hall-Mark, Avnet Adelsy and Avnet DeMico were funded by $194
million of additional borrowings and $166 million of available
cash.
In 1993, the Company generated $14 million of cash, $50
million provided from operations reduced by $36 million used for
other normal business operations including purchases of property,
plant and equipment, dividends and other immaterial items. In
addition, the Company used $70 million to redeem its 8% Convertible
Subordinated Debentures and repay other debt, and used $36 million
for acquisitions, primarily Avnet Nortec and Avnet E2000. The
resulting $92 million net use of cash together with the $255
million of proceeds from the liquidation of the Company's interest-
bearing investments resulted in a $163 million increase in cash.
The Company liquidated its marketable securities portfolio late in
1993 in contemplation of the need for funds for the acquisition of
Hall-Mark. In 1992, the Company generated $29 million of cash
before considering the $41 million used for the acquisition of
Avnet Composants and $25 million used for the repurchase of a
portion of its debentures and repayment of other debt.
The Company's quick assets at July 1, 1994 totaled $627
million compared with $579 million at June 30, 1993. At July 1,
1994, quick assets exceeded the Company's current liabilities by
$251 million compared with a $306 million excess at the end of
1993. Working capital at July 1, 1994 was $888 million compared
with $803 million in 1993. At July 1, 1994, to support each dollar
of current liabilities, the Company had $1.67 of quick assets and
$1.69 of other current assets, for a total of $3.36 compared with
$3.95 at the end of the prior fiscal year.
On July 1, 1993, the Company completed its acquisition of
Hall-Mark (See Note 15 to the consolidated financial statements).
In order to fund a portion of the costs of the acquisition of Hall-
Mark, the Company established a credit arrangement with NationsBank
of North Carolina, N.A. ("NationsBank"). That credit arrangement
has since been restructured and currently consists of a three-year
revolving credit facility with a syndication of banks led by
NationsBank, which facility provides a line of credit of up to
$150.0 million (the "Credit Facility"). The Company may select
from various interest rate options and maturities under this
facility. In January 1994, the Company filed a registration
statement with the Securities and Exchange Commission which
provides for borrowings of up to $200 million in public debt over
the next two years. On March 15, 1994 the Company completed a $100
million public offering of its 6 7/8% Notes Due March 15, 2004 (the
"6 7/8% Notes"), the net proceeds of which, totalling $98.8
million, were used to pay down a portion of the Company's
outstanding bank debt.
At July 1, 1994, the Company had $95 million outstanding under
the Credit Facility together with the $100 million of the 6 7/8%
Notes, $105 million of 6% Convertible Debentures and $3 million of
other debt. This $303 million of long-term debt at July 1, 1994
represents an increase of $196 million over the $107 million
outstanding at June 30, 1993. As a result, the Company's debt to
capital (shareholders' equity plus long-term debt) ratio was 21% at
July 1, 1994 compared with 11% at June 30, 1993. In 1994, income
was almost eight times greater than fixed charges. Internally
generated cash flow during 1994, represented by net income before
depreciation and other non-cash items, was $124 million or 41% of
total debt at July 1, 1994.
During the last three years, the Company's capital rose $409
million to a total of $1.412 billion at July 1, 1994.
Shareholders' equity increased by $307 million, $171 million due to
the issuance of Avnet stock and stock options in connection with
the acquisition of Hall-Mark and $138 million from earnings, net of
dividends, reinvested in the business, offset by $2 million, net,
of other items. Long-term debt increased by $102 million as a
result of the $196 million increase in 1994 as described above
offset by a $94 million decrease in prior periods due to the
redemption and repurchase of a portion of the Company's debentures
and repayment of other long-term debt.
At July 1, 1994, the Company did not have any material
commitments for capital expenditures. The Company and the former
owners of a Company-owned site in Oxford, North Carolina have
entered into a Consent Decree and Court Order with the
Environmental Protection Agency (EPA) for the environmental clean-
up of the site, the cost of which, according to the EPA's remedial
investigation and feasibility study, is estimated to be
approximately $6.3 million, exclusive of the $1.5 million in EPA
past costs paid by the potentially responsible parties (PRP's).
Pursuant to a Consent Decree and Court Order entered into between
the Company and the former owners, the former owners have agreed to
bear at least 70% of the clean-up costs of the site, and the
Company will be responsible for not more than 30% of those costs.
As noted in Item 3 of this Report, the Company is also a PRP in an
environmental clean-up at a site in North Smithfield, Rhode Island.
In addition, the Company has received notice from a third party of
its intention to seek indemnification for costs it may incur in
connection with an environmental clean-up at a site in Rush,
Pennsylvania resulting from the alleged disposal of wire insulation
material at the site by a former unit of the Company. Based upon
the information known to date, the Company believes that it has
appropriately accrued in the financial statements for its share of
the costs of the clean-up at these sites. The Company is also a
PRP or has been notified of claims made against it at
environmental clean-up sites in Huguenot, New York and in
Hempstead, New York. At this time, the Company cannot estimate the
amount of its potential liability, if any, for clean-up costs in
connection with these sites, but does not anticipate that these
matters or any other contingent matters will have a material
adverse impact on the Company's financial condition, liquidity or
results of operations.
The Company is not now aware of any commitments, contingencies
or events within its control which may significantly change its
ability to generate sufficient cash from internal or external
sources to meet its needs.
ITEM 8. Financial Statements and Supplementary Data
The Financial Statements and Supplementary Data are listed
under Item 14 in this annual report.
ITEM 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None to report.
PART III
ITEM 10. Directors and Executive
Officers of the Registrant
ITEM 11. Executive Compensation
ITEM 12. Security Ownership of Certain
Beneficial Owners and Management
ITEM 13. Certain Relationships and Related Transactions
The information called for by Items 10, 11, 12 and 13
(except to the extent set forth in Item 4A above) is incorporated
in this Report by reference to the Company's definitive proxy
statement relating to the Annual Meeting of Shareholders
anticipated to be held November 16, 1994.
PART IV
ITEM 14. Exhibits, Financial Statement
Schedules and Reports on Form 8-K
a. The following documents are filed as part of this report:
Page
1. Financial Statements and Supplementary Data
Report of Independent Public Accountants 30
Avnet, Inc. and Subsidiaries Consolidated
Financial Statements:
Statements of Income for the years ended
July 1, 1994, June 30, 1993 and June 30, 1992 31
Balance Sheets at July 1, 1994 and June 30, 1993 32
Statements of Shareholders' Equity for the years
ended July 1, 1994, June 30, 1993 and
June 30, 1992. 33
Statements of Cash Flows for the years ended
July 1, 1994, June 30, 1993 and June 30, 1992. 34
Notes to consolidated financial statements 35-46
2. Financial statement schedules
(i) Schedule VIII for the years ended
July 1, 1994, June 30, 1993 and June 30, 1992. 47
Schedules other than those above have been omitted because
they are not applicable or the required information is shown
in the financial statements or notes thereto.
3. Exhibits:
Exhibit
No. Description
3A. Certificate of Incorporation of the Registrant as
currently in effect.
3B. By-laws of the Registrant as currently in effect
(incorporated herein by reference to Commission
File No. 1-4224, Current Report on Form 8-K dated
September 23, 1994).
4. Note: The total amount of securities outstanding
at the end of the period covered by this Report
under any instrument which defines the rights of
holders of Registrant's long-term debt does not
exceed 10% of the total assets of the Registrant
and its subsidiaries on a consolidated basis.
Therefore, none of the instruments defining the
rights of the holders of such long-term debt are
required to be filed as exhibits to this Report.
The Registrant agrees to furnish copies of such
instruments to the Commission upon request.
10A. Agreement and Plan of Merger dated April 20, 1993
between the Registrant and Hall-Mark Electronics
Corporation (incorporated herein by reference to
Registration Statement on Form S-4, Reg. No. 33-
62462, Appendix A to Joint Proxy Statement/
Prospectus).
Executive Compensation Plans and Arrangements
10B. Employment agreement, dated July 1, 1990, between
the Registrant and Mr. Sylvester D. Herlihy
(incorporated herein by reference to Commission
file No. 1-4224, Annual Report on Form 10-K for the
fiscal year ended June 30, 1990).
10C. Employment Extension Agreement dated November 29,
1993 between the Registrant and Mr. Leon Machiz
(incorporated herein by reference to Commission
File No. 1-4224, Current Report on Form 8-K dated
September 23, 1994).
10D. Employment agreement, dated February 28, 1990
between the Registrant and Mr. Leon Machiz
(incorporated by reference to Commission File No.
1-4224, Annual Report on Form 10-K for the fiscal
year ended June 30, 1990).
10E. Employment Agreement and amendment to Employment
Agreement dated July 1, 1992 between the Registrant
and Roy Vallee (incorporated by reference to
Commission file No. 1-4224, Quarterly Report on
Form 10-Q for the quarter ended April 2, 1993).
10F.
Second Amendment, dated July 1, 1993, to Employment Agreement
dated July 1, 1992 between Registrant and Roy Vallee
(incorporated by reference to Commission File No. 1-4224, Annual
Report on Form 10-K for the fiscal year ended June 30, 1993).
10G. Employment Agreement, dated July 22, 1992 between
the Registrant and Mr. Keith Williams (incorporated
by reference to Commission File No. 1-4224, Annual
Report on Form 10-K for the fiscal year ended June
30, 1992).
Executive Compensation Plans and Arrangements
10H. Consulting Agreement dated July 1, 1993 between the
Registrant and Mr. David Shaw (incorporated by
reference to Commission File No. 1-4224, Annual
Report on Form 10-K for the fiscal year ended June
30, 1993).
10I. Employment Agreement dated December 31, 1992
between Hall-Mark Electronics Corp. and Mr. Joseph
W. Semmer (incorporated herein by reference to
Commission File No. 1-4224, Current Report on Form
8-K dated September 23, 1994).
10J. Employment Agreement dated December 31, 1992
between Hall-Mark Electronics Corp. and Mr. George
Privett (incorporated herein by reference to
Commission File No. 1-4224, Current Report on Form
8-K dated September 23, 1994).
10K. Employment Agreement dated April 20, 1993 between
Hall-Mark Electronics Corp. and Mr. Bruce
Evashevski (incorporated herein by reference to
Commission File No. 1-4224, Current Report on Form
8-K dated September 23, 1994).
10L. Letter dated April 20, 1993 from the Registrant
confirming Registrant's intent to assume employment
agreements of certain Hall-Mark Electronics Corp.
executives, including the Employment Agreements of
Messrs. Semmer, Privett and Evashevski
(incorporated herein by reference to Commission
File No. 1-4224, Current Report on Form 8-K dated
September 23, 1994).
10M. Consulting Agreement dated July 1, 1994 between the
Registrant and Mr. George Privett (incorporated
herein by reference to Commission File No. 1-4224,
Current Report on Form 8-K dated September 23,
1994).
10N. Avnet 1984 Stock Option Plan (incorporated herein
by reference to Registration Statement on Form S-8,
Registration No. 2-96800: Exhibit 4-B).
10O. Avnet 1988 Stock Option Plan (incorporated herein
by reference to Registration Statement on Form S-8,
Registration No. 33-29475: Exhibit 4-B).
10P. Avnet 1990 Stock Option Plan (incorporated herein
by reference to Commission File No. 1-4224, Annual
Report on Form 10-K for the fiscal year ended June
30, 1992).
10Q. Avnet Second Incentive Stock Program (incorporated
herein by reference to Registration Statement on
Form S-8, Registration No. 2-94916; Exhibit 4-B).
10R. Outside Director Stock Bonus Plan as extended and
amended, effective July 1, 1992 (incorporated
herein by reference to Commission File No. 1-4224,
Annual Report on Form 10-K for the fiscal year
ended June 30, 1992).
10S. Retirement Plan for Outside Directors of Avnet,
Inc., effective July 1, 1993 (incorporated herein
by reference to Commission File No. 1-4224, Annual
Report on Form 10-K for the fiscal year ended June
30, 1992).
11.* Statement regarding computation of per share
earnings.
21.* List of subsidiaries of the Registrant.
23.* Consent of Arthur Andersen LLP.
24. Powers of Attorney (incorporated herein by
reference to Commission File No. 1-4224, Current
Report on Form 8-K dated September 23, 1994).
b. A Report on Form 8-K dated May 25, 1994 was filed during the
last quarter of the Registrant's fiscal year reporting a
change in Registrant's fiscal year end from June 30 to that
Friday in each year closest to June 30. The change in fiscal
year reported commenced with the 1994 fiscal year.
*Filed herewith
S I G N A T U R E S
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
AVNET, INC.
(Registrant)
Date: September 27, 1994 By: s/Leon Machiz
Leon Machiz, Chairman of
the Board, Chief
Executive Officer and
Director
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities indicated on
September 27, 1994.
Signature Title
s/ Leon Machiz Chairman of the Board,
(Leon Machiz) Chief Executive Officer and
Director
* President, Chief Operating
(Roy Vallee) Officer, Vice Chairman of
the Board and Director
* Director
(Gerald J. Berkman)
* Director
(Joseph F. Caligiuri)
* Director
(Alvin E. Friedman)
* Director
(Sylvester D. Herlihy)
* Director
(Ehud Houminer)
* Director
(Salvatore J. Nuzzo)
* Director
(Frederic Salerno)
* Director
(David Shaw)
Director
(Howard Stein)
Signature Title
* Director
(J. S. Webb)
* Director
(George Weissman)
* Director
(Frederick S. Wood)
s/Raymond Sadowski Senior Vice President,
(Raymond Sadowski) Chief Financial Officer
and Assistant Secretary
s/John F. Cole Controller and Principal
(John F. Cole) Accounting Officer
* By: s/Raymond Sadowski
(Raymond Sadowski)
Attorney-in-Fact
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders
Avnet, Inc.
Great Neck, New York
We have audited the accompanying consolidated balance sheets of Avnet, Inc.
(a New York corporation) and Subsidiaries as of July 1, 1994 and June 30, 1993,
and the related consolidated statements of income, shareholders' equity and cash
flows for each of the three years in the period ended July 1, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Avnet, Inc. and Subsidiaries
as of July 1, 1994 and June 30, 1993, and the results of their operations and
their cash flows for each of the three years in the period ended July 1, 1994 in
conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion, fairly
states
in all material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
s/ARTHUR ANDERSEN LLP
New York, New York
August 10, 1994
AVNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Thousands except per share data)
Years Ended
July 1, June 30, June 30,
1994 1993 1992
Revenues:
Sales $3,547,743 $2,237,954 $1,759,008
Investment income and other, net 4,786 20,393 27,226
3,552,529 2,258,347 1,786,234
Cost and expenses:
Cost of sales 2,851,681 1,751,195 1,350,679
Selling, shipping, general and
administrative 481,448 367,837 320,378
Depreciation and amortization 27,127 16,160 18,347
Restructuring and integration
(Note 14) 22,702 -- --
Interest 14,733 8,972 13,404
3,397,691 2,144,164 1,702,808
Income before income taxes and
cumulative effect of a change
in accounting principle 154,838 114,183 83,426
Income taxes (Note 7) 66,730 45,123 32,904
Income before cumulative effect of
a change in accounting principle 88,108 69,060 50,522
Cumulative effect of a change in the
method of accounting for income
taxes (Note 7) (2,791) -- --
Net income $ 85,317 $ 69,060 $ 50,522
Earnings per share:
Income before cumulative effect of
a change in accounting principle $ 2.16 $ 1.91 $ 1.42
Cumulative effect of a change in
the method of accounting for
income taxes (.07) -- --
Net income $ 2.09 $ 1.91 $ 1.42
Shares used to compute earnings
per share (Note 1) 40,847 38,253 35,666
See notes to consolidated financial statements
AVNET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
July 1, June 30,
1994 1993
Assets:
Current assets:
Cash and cash equivalents $ 53,876 $ 219,827
Receivables, less allowances of $21,975 and
$14,736, respectively 573,569 359,200
Inventories (Note 2) 627,022 491,769
Other 9,614 4,797
Total current assets 1,264,081 1,075,593
Property, plant and equipment, at cost,
net (Note 3) 115,146 102,539
Intangibles and other assets (Note 4) 408,460 69,181
Total assets $1,787,687 $1,247,313
Liabilities:
Current liabilities:
Borrowings due within one year (Note 5) $ 47 $ 107
Accounts payable 252,915 182,227
Accrued expenses and other (Note 6) 123,135 90,196
Total current liabilities 376,097 272,530
Long-term debt, less due within one year
(Note 5) 303,075 106,623
Commitments and contingencies (Notes 9 and 11)
Total liabilities 679,172 379,153
Shareholders' equity (Note 10):
Common stock $1.00 par, authorized 60,000,000
shares, issued 41,104,000 shares and
36,131,000 shares, respectively 41,104 36,131
Additional paid-in capital 307,149 138,230
Retained earnings 780,266 719,308
Cumulative translation adjustments ( 9,692) ( 14,313)
Common stock held in treasury at cost, 445,000
shares and 483,000 shares, respectively ( 10,312) ( 11,196)
Total shareholders' equity 1,108,515 868,160
Total liabilities and shareholders' equity $1,787,687 $1,247,313
See notes to consolidated financial statements
AVNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED JULY 1, 1994, JUNE 30, 1993 AND JUNE 30, 1992
(Dollars in Thousands)
Additional Cumulative Total
Common Paid-in Retained Translation Treasury Shareholders'
Stock Capital Earnings Adjustments Stock Equity
Balance, June 30, 1991 $36,006 $134,432 $642,384 $ 1,129 ($12,527) $ 801,424
Net income 50,522 50,522
Dividends, $.60 per share ( 21,298) ( 21,298)
Cumulative translation adjustments 4,627 4,627
Other, net, principally stock option
and incentive programs 37 1,198 711 1,946
Balance, June 30, 1992 36,043 135,630 671,608 5,756 ( 11,816) 837,221
Net income 69,060 69,060
Dividends, $.60 per share ( 21,360) ( 21,360)
Cumulative translation adjustments ( 20,069) ( 20,069)
Other, net, principally stock option
and incentive programs 88 2,600 620 3,308
Balance, June 30, 1993 36,131 138,230 719,308 ( 14,313) ( 11,196) 868,160
Net income 85,317 85,317
Dividends, $.60 per share ( 24,359) (24,359)
Cumulative translation adjustments 4,621 4,621
Acquisition of Hall-Mark Electronics
(Note 15) 4,858 165,717 170,575
Other, net, principally stock option
and incentive programs 115 3,202 884 4,201
Balance, July 1, 1994 $41,104 $307,149 $780,266 ( $9,692) ($10,312) $1,108,515
See notes to consolidated financial statements
AVNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
Years Ended
July 1, June 30, June 30,
1994 1993 1992
Cash flows from operating activities:
Net income $ 85,317 $ 69,060 $50,522
Add non-cash and other reconciling items:
Depreciation and amortization 31,822 22,845 24,041
Deferred taxes (10,250) 1,719 ( 1,283)
Cumulative effect of change in
accounting for income taxes 2,791 -- --
Other, net (Note 12) 14,343 2,922 5,023
124,023 96,546 78,303
Receivables ( 127,979) ( 38,434) ( 40,511)
Inventories ( 27,853) ( 13,210) ( 1,691)
Payables, accruals and other, net 54,054 4,970 40,896
Net cash flows provided from
operations 22,245 49,872 76,997
Cash flows from financing activities:
Issuance of notes in public offering, net
of issuance costs 98,772 -- --
Issuance of bank debt, net of issuance
costs 94,964 -- --
Repurchase of debentures -- ( 68,117) ( 25,083)
Payment of other debt ( 149) ( 1,432) ( 168)
Cash dividends (Note 12) ( 29,706) ( 21,342) ( 21,287)
Other, net 2,549 1,346 539
Net cash flows provided from (used for)
financing 166,430 ( 89,545) ( 45,999)
Cash flows from investing activities:
Purchases of property, plant and
equipment ( 21,441) ( 15,094) ( 25,064)
Acquisition of operations, net (Note 12) ( 333,206) ( 36,183) ( 39,672)
Disposition (acquisition) of interest-
bearing investments, net -- 255,075 ( 5,367)
Other, net 21 ( 1,191) 50
Net cash flows (used for) provided
from investing ( 354,626) 202,607 ( 70,053)
Cash and cash equivalents:
- (decrease) increase ( 165,951) 162,934 ( 39,055)
- at beginning of year 219,827 56,893 95,948
- at end of year $ 53,876 $219,827 $56,893
Additional cash flow information (Note 12)
Net (decrease) in cash and total
interest-bearing investments ($165,951) ($ 84,847) ($36,688)
See notes to consolidated financial statements
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of significant accounting policies:
Principles of consolidation - The statements include the accounts of the
Company and all of its subsidiaries. All intercompany accounts and
transactions have been eliminated.
Inventories - Stated at cost (first-in, first-out) or market, whichever is
lower.
Depreciation - Depreciation is generally provided for by the straight-line
method over the estimated useful lives of the assets.
Income taxes - No provision for U.S. income taxes has been made for
$52,018,000 of cumulative unremitted earnings of foreign subsidiaries
because those earnings are expected to be permanently reinvested outside
the U.S. If such earnings were remitted to the U.S., any net U.S. income
taxes would not have a material impact on the results of operations of the
Company.
Statement of cash flows - The Company considers all highly liquid debt
instruments purchased with a maturity of three months or less to be cash
equivalents.
Earnings per share - In computing earnings per share for fiscal 1994 and
1992, the 6% Convertible Subordinated Debentures were not considered
common equivalent shares because they would have been anti-dilutive. The
8% Convertible Subordinated Debentures, which were fully redeemed during
fiscal 1993 (see Note 5), were not considered common equivalent shares in
fiscal 1993 and 1992 as they would have been anti-dilutive.
Fiscal Year - Effective in fiscal 1994, the Company changed its fiscal
year to end on the Friday closest to June 30th. The impact on the current
year of one additional day of operations was not material.
2. Inventories:
July 1, June 30,
(Thousands) 1994 1993
Finished goods $554,813 $422,823
Work-in-process 2,730 2,861
Raw materials 69,479 66,085
$627,022 $491,769
3. Property, plant and equipment:
July 1, June 30,
(Thousands) 1994 1993
Land $ 8,275 $ 6,525
Buildings 77,628 73,547
Machinery, fixtures and equipment 193,617 174,732
Leasehold improvements 3,886 7,562
283,406 262,366
Less accumulated depreciation 168,260 159,827
$115,146 $102,539
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. Intangibles:
Intangibles (net of amortization) at July 1, 1994, totaling $382,548,000,
including $351,505,000 arising from fiscal year 1994 acquisitions of Hall-
Mark Electronics Corporation, Avnet Adelsy and Avnet DeMico (see Notes 12
and 15), consist primarily of goodwill. At July 1, 1994, goodwill
applicable to purchases made after October 31, 1970 of $375,173,000, net
of amortization, is being amortized over 40 years on the straight-line
method.
5. External financing:
July 1, June 30,
(Thousands) 1994 1993
6% Convertible Subordinated Debentures
due April 15, 2012, convertible
at $43 per share $105,285 $105,285
6 7/8% Notes due March 15, 2004 100,000 --
Bank Syndicated Credit Facility 95,000 --
Other 2,837 1,445
303,122 106,730
Less borrowings due within one year 47 107
Long-term debt $303,075 $106,623
During fiscal 1994, the Company established a three-year, floating rate
(4.6% at July 1, 1994), revolving credit agreement with a syndicate of
banks led by NationsBank of North Carolina, N.A. which provides a line of
credit of up to $150,000,000. Also, during fiscal 1994 the Company raised
$100,000,000 (before deducting underwriting fees and other costs) in the
public market by issuing the 6 7/8% Notes due March 15, 2004.
On October 1, 1992, the Company redeemed all of the $67,576,000
outstanding 8% Convertible Subordinated Debentures at the redemption price
of 100.8% of their principal amount together with accrued interest to the
redemption date. The loss on extinguishment of these debentures was not
material.
Annual payments on external financing in 1995, 1996, 1997, 1998 and 1999
will be $47,000, $105,000, $95,113,000, $120,000 and $129,000,
respectively.
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. Accrued expenses and other:
July 1, June 30,
(Thousands) 1994 1993
Payroll and related $36,921 $26,725
Insurance 15,197 14,353
Interest 4,871 2,760
Income taxes 4,615 8,154
Dividend payable (Note 12) -- 5,347
Other 61,531 32,857
$123,135 $90,196
7. Income taxes:
Effective July 1, 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 109 "Accounting for Income
Taxes" and recognized a charge for the cumulative effect of the change in
accounting principle in the amount of $2,791,000 ($.07 per share). SFAS
No. 109 requires the use of the asset and liability method for recording
deferred income taxes wherein deferred tax assets and liabilities are
recognized for the estimated future tax consequences attributable to
differences between the financial statement and tax bases of assets and
liabilities. It also requires the Company to adjust deferred income tax
balances to reflect changes in current income tax rates and to record the
impact of a change in tax rates in the income statement in the period that
the change is enacted.
A reconciliation between the federal statutory tax rate and the effective
tax rate is:
Years Ended
July 1, June 30, June 30,
1994 1993 1992
Federal statutory rate 35.0% 34.0% 34.0%
State and local income taxes,
net of federal benefit 4.9 5.0 4.2
Amortization of goodwill 2.2 -- --
Other, net 1.0 .5 1.2
Effective tax rate 43.1% 39.5% 39.4%
The components of the provision for income taxes are indicated in the next
table. The provision (future tax benefit) for deferred income taxes
results from timing differences arising principally from inventory
valuation, accounts receivable valuation and depreciation.
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. Income taxes (Continued):
(Thousands) Years Ended
July 1, June 30, June 30,
Current: 1994 1993 1992
Federal $53,212 $31,342 $26,346
State and local 13,749 7,927 5,419
Foreign 10,019 4,135 2,422
Total current taxes 76,980 43,404 34,187
Deferred:
Federal (8,609) 777 (571)
State and local (2,103) 211 (498)
Foreign 462 731 (214)
Total deferred taxes (10,250) 1,719 (1,283)
Provision for income taxes $66,730 $45,123 $32,904
The current year tax provision includes an additional $500,000 federal tax
provision for the impact of the retroactive increase in federal income tax
rates enacted in fiscal 1994 as it relates to fiscal 1993 income. In
addition, $10,786,000 of income tax benefit, net, was recorded as an
adjustment to goodwill for the tax impact of adjustments to the value of
assets and liabilities acquired in connection with the acquisition of
Hall-Mark Electronics.
The significant components of deferred tax assets and liabilities included
on the balance sheet as of the beginning and end of fiscal 1994 were as
follows:
July 1, July 1,
1994 1993
Deferred tax assets:
Inventory valuation $13,593 $ 6,345
Accounts receivable valuation 6,084 5,309
Various accrued liabilities and other 7,562 7,492
27,239 19,146
Deferred tax liabilities:
Depreciation and amortization
of fixed assets 4,987 8,530
Other 6,057 6,828
11,044 15,358
Net deferred asset $16,195 $ 3,788
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. Pension and profit sharing plans:
During the three years ended July 1, 1994, the following amounts were
charged (credited) to income under the Company's pension plan, 401(k) plan
and a discretionary profit sharing plan:
Years Ended
July 1, June 30, June 30,
(Thousands) 1994 1993 1992
Pension ($ 796) ($1,008) ($977)
401(k) 851 447 438
Profit sharing 913 695 638
The Company's noncontributory defined benefit pension plan and its 401(k)
plan cover substantially all domestic employees, except for those at one
unit covered by a profit sharing plan. The noncontributory pension plan
was amended as of January 1, 1994 to provide defined benefits pursuant to
a cash balance feature whereby a participant accumulates a benefit based
upon a percentage of current salary, which varies with age, and interest
credits. At July 1, 1994, the market value of the pension plan assets was
$110,333,000 and these assets were comprised of U.S. Government securities
(58%), common stocks (25%), money market funds (14%) and corporate debt
obligations (3%).
In each of the last three years, the assumed interest rate and the
expected return on plan assets were 8% while assumed salary increases were
approximately 6% in 1993 and 1992. Under the cash balance plan adopted
during fiscal 1994 service costs are based solely on current year salary
levels; therefore, projected salary increases are not taken into account.
The pertinent calculations covering the pension credits, obligations and
prepaid pension cost are summarized below:
Credits to income:
Years Ended
(Thousands) July 1, June 30, June 30,
1994 1993 1992
Earned:
Return on Plan assets - actual $ 2,221 $12,032 $11,254
Lower (higher) than expected
return - deferred 6,224 ( 4,264) ( 3,939)
Expected return 8,445 7,768 7,315
Amortization of 7/1/85 excess assets 2,830 2,830 2,830
Amortization of prior service
credits (costs) 110 (101) (101)
11,385 10,497 10,044
Less benefits:
Present value of benefits
earned during year 4,854 4,239 4,179
Interest on projected benefit obligation 5,735 5,250 4,888
10,589 9,489 9,067
Net credit to income $ 796 $ 1,008 $ 977
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. Pension and profit sharing plans (continued):
Funded status of the Plan:
(Thousands) July 1, June 30, June 30,
1994 1993 1992
Projected benefit obligation:
Vested benefits $ 73,343 $ 65,803 $ 61,130
Non-vested benefits 2,894 2,402 2,229
Accumulated benefit obligation 76,237 68,205 63,359
Future salary assumption -- 5,253 5,395
Projected benefit obligation 76,237 73,458 68,754
Unamortized 7/1/85 excess assets 18,958 21,788 24,618
Cumulative higher than expected:
Return on Plan assets 4,223 10,447 7,344
Projected benefit obligation (1,666) (895) (3,783)
Unamortized prior service credits
(costs) 3,898 (915) (1,016)
101,650 103,883 95,917
Less market value of Plan assets 110,333 111,769 102,795
Prepaid pension cost $ 8,683 $ 7,886 $ 6,878
The absence of a future salary assumption amount and the large unamortized
prior service credit for the year ended July 1, 1994 are due to the
adoption of the cash balance plan. Not included in the above tabulations
are pension plans of certain non-U.S. subsidiaries which are not material.
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. Long-term leases:
The Company leases many of its operating facilities and is also committed
under lease agreements for transportation and operating equipment. Rent
expense charged to operations for the three years ended July 1, 1994 is as
follows:
Years Ended
July 1, June 30, June 30,
(Thousands) 1994 1993 1992
Buildings $17,487 $14,779 $12,681
Equipment 5,307 2,811 2,399
$22,794 $17,590 $15,080
At July 1, 1994, aggregate future minimum lease commitments, principally
for buildings, in 1995, 1996, 1997, 1998, 1999 and thereafter (through
2003) are $13,448,000, $9,145,000, $5,893,000, $4,015,000, $2,673,000 and
$5,356,000, respectively.
10. Stock option and incentive programs:
The Company has three stock option plans with shares still available for
grant:
1990 1984 AND 1988
QUALIFIED PLAN NON-QUALIFIED PLANS
Minimum exercise price as
a percentage of fair market
value at date of grant 100% 50%
Life of options 10 years 10 years
Exercisable In whole or 25% annually after
installments one year
Plan termination date 11/28/00 1984 plan - 12/31/94
1988 plan - 12/31/98
Shares available for
grant at July 1, 1994 684,500 325,796
Under the non-qualified plans, the excess of the fair market value at the
date of grant over the exercise price is considered deferred compensation
which is amortized and charged against income as it is earned.
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. Stock option and incentive programs (continued):
Pertinent information covering options is:
Option and market prices are
per share 1994 1993 1992
Outstanding at end of year:
Shares - Total 1,193,334 577,563 627,013
Exercisable 489,637 343,563 354,888
Option prices $13.50-38.50 $11.75-34.50 $11.75-42.13
Market prices at
date granted $19.75-38.50 $19.75-38.19 $19.75-42.13
Granted:
Shares 821,590 69,000 93,000
Option prices $17.63-38.50 $28.00-34.50 $18.50-26.50
Exercised:
Shares 114,445 87,950 37,700
Option prices $11.75-34.00 $14.00-31.25 $11.75-24.25
Cancelled and expired:
Shares 91,374 30,500 41,700
Option prices $17.63-38.50 $19.75-42.13 $14.00-42.13
Under the incentive stock program, a total of 254,312 shares are still
available for award based on operating achievements. Delivery of
incentive shares is spread equally over a four-year period and is subject
to the employee's continuance in the Company's employ. As of July 1, 1994,
48,547 shares previously awarded have not yet been delivered. The program
will terminate on October 31, 1995.
At July 1, 1994, common shares reserved for stock option and stock
incentive programs and conversion of debentures were 4,954,977 shares.
11. Contingent liabilities:
From time to time, the Company may become liable with respect to pending
and threatened litigation, taxes, and environmental and other matters. The
Company has been designated a potentially responsible party or has had
other claims made against it in connection with environmental clean-ups at
several sites. Based upon the information known to date, the Company
believes that it has appropriately reserved for its share of the costs of
the clean-ups and it is not anticipated that any contingent matters will
have a material adverse impact on the Company's financial condition,
liquidity or results of operations.
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. Additional cash flow information:
Other non-cash and reconciling items primarily include provisions for
doubtful accounts and gains and losses on dispositions of marketable
securities.
Due to the change in the Company's fiscal year (see Note 1) and its
historical dividend payment dates, 1994 includes the cash payment of the
July 1, 1994 dividend. This results in five quarterly dividend payments
being included in 1994 and the absence of an unpaid dividend at year end.
In 1994 the Company acquired Hall-Mark Electronics Corporation, the
nation's third largest distributor of electronic components, and Avnet
Adelsy and Avnet DeMico, two Italian based electronic component
distributors, for a total investment of $501,831,000 (net of $8,719,000 of
cash on the books of the companies acquired) of which $333,206,000 was paid
in cash, $166,093,000 in Avnet stock and $2,532,000 in Avnet stock options,
net of related tax benefits of $1,950,000.
In 1993 the Company acquired Avnet Nortec, a Scandinavian electronics
distributor, and Avnet E2000, a German electronics distributor for a total
investment of $36,491,000 paid in cash. In April 1992, the Company
acquired Avnet Composants, a French electronics distributor, for a total
investment of approximately $41,240,000 paid in cash. The net cash
disbursed in each of the three years in connection with these transactions,
as well as the net cash collected in those years from prior dispositions,
are reflected as cash flows arising from disposition or acquisition of
operations.
Interest and income taxes paid were as follows:
Years Ended
July 1, June 30, June 30,
(Thousands) 1994 1993 1992
Interest $12,622 $12,819 $13,810
Income taxes $58,128 $40,513 $33,636
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. Industry segment data:
Operating profit of the three business segments excludes general
corporate expenses, interest expense, income taxes and certain other
transactions.
Property, plant
(Millions) Operating Identifiable and equipment
Segments Sales Profit Assets Depreciation Additions
Electronic
Marketing
1994 $3,161.5 $174.4 $1,578.1 $15.8 $18.1
1993 1,917.3 113.5 866.3 12.7 11.1
1992 1,473.5 81.7 765.6 13.7 10.8
Video
Communications
1994 199.4 11.1 69.4 3.2 3.0
1993 134.0 4.7 68.0 4.1 2.5
1992 104.9 4.6 63.1 3.7 3.8
Electrical &
Industrial
1994 186.8 2.5 101.8 2.2 2.0
1993 186.7 2.7 99.2 2.1 3.4
1992 180.6 4.1 103.0 1.8 8.8
Corporate
Office
1994 -- (33.2) 38.4 .4 .1
1993 -- ( 6.7) 213.8 .5 .2
1992 -- ( 7.0) 311.0 .5 .5
Consolidated
1994 $3,547.7 $154.8 $1,787.7 $21.6 $23.2
1993 2,238.0 114.2 1,247.3 19.4 17.2
1992 1,759.0 83.4 1,242.7 19.7 23.9
Foreign operations, included above in the applicable operating group
figures.
1994 $609.0 $30.2 $323.6 $2.9 $5.4
1993 403.4 16.0 224.8 2.7 .9
1992 174.5 4.4 153.9 2.0 4.7
The segments are described on pages 3 to 11. The identifiable assets in
the Corporate Office are primarily cash and cash equivalents. The
significant increase in sales, operating profit and identifiable assets for
both the Electronic Marketing Group and Consolidated were due primarily to
the impact of the July 1, 1993 acquisition of Hall-Mark. The increase in the
operating loss for the Corporate Office was due primarily to a decrease in
investment income and an increase in interest expenses as a result of the
Company's liquidation of its marketable securities portfolio and the increase
in debt in order to fund a portion of the costs of the acquisitions of Hall-
Mark, Avnet Adelsy and Avnet De Mico.
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. Restructuring and integration charges:
During the first quarter of 1994, the Company recorded a special charge of
$22,702,000 ($13,498,000 after tax or $0.33 per share) for restructuring and
integration costs associated with the July 1, 1993 acquisition of Hall-Mark
and the restructuring of the Electrical and Industrial Group. These costs
included accruals for severance, real and personal property lease
terminations, relocation of employees, inventory adjustments related to
supplier terminations and other items. As of the end of fiscal 1994,
approximately $6,000,000 of the charge has not yet been utilized. It is
currently anticipated that the remaining balance will be expended by the end
of calendar 1994, except for amounts related to longer term real and
personal property lease and severance commitments.
15. Acquisition of Hall-Mark Electronics Corporation:
On July 1, 1993, the Company completed the acquisition of all of the stock
of Hall-Mark Electronics Corporation, the nation's third largest distributor
of electronic components, pursuant to an Agreement and Plan of Merger dated
April 20, 1993. Each share of Hall-Mark common stock was exchanged for $20
in cash and 0.45 shares of Avnet common stock, which had a market value of
$34.1875 per share on July 1, 1993. The total cost of the acquisition
including expenses was approximately $496,559,000, consisting of the cost
for the Hall-Mark common stock of $218,409,000 in cash, $166,093,000 in
Avnet stock and $2,532,000 in Avnet stock options (net of related tax
benefits of $1,950,000), and the cost for the refinancing of Hall-Mark bank
debt of $109,525,000. The $327,934,000 of funding required to complete the
transaction was financed through cash on hand, proceeds from the exercise
of Hall-Mark options and warrants, and borrowings under a credit facility
with NationsBank of North Carolina, N.A. The transaction was accounted for
as a purchase. Had the acquisition been completed as of July 1, 1992,
fiscal 1993 sales, net income and earnings per share for the Company on a
proforma basis would have been $2,982,000,000, $79,000,000 and $1.93 per
share, respectively (unaudited).
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. Summary of quarterly results (unaudited)
(Millions except per share data):
Gross Income Earnings
Quarter Sales profit Pre-tax After tax per share
1st - 94 $878.0 $173.0 $19.8(a) $10.1(a)(b) $.25(a)(b)
- 93 533.2 117.8 28.7 16.9 .47
2nd - 94 850.5 165.0 41.2 23.6 .58
- 93 526.8 115.9 25.5 15.5 .43
3rd - 94 900.0 172.4 43.9 25.3 .62
- 93 582.5 127.1 30.1 18.2 .50
4th - 94 919.2 185.7 49.9 29.1 .71
- 93 595.5 126.0 29.9 18.5 .51
Year - 94 $3,547.7 $696.1 $154.8(a) $88.1(a)(b) $2.16(a)(b)
- 93 2,238.0 486.8 114.2 69.1 1.91
(a) Includes the pre-tax, after tax and earnings per share effects of $22.7
million, $14.0 million and $0.34 per share, respectively, of the Company's
restructuring and integration charges, and the retroactive impact of the
change in U.S. tax rates.
(b) Excludes the $2.8 million and $0.07 per share charge related to the
cumulative effect of the change in the method of accounting for income
taxes.
SCHEDULE VIII
AVNET, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JULY 1, 1994, JUNE 30, 1993 AND JUNE 30, 1992
(Thousands)
Column A Column B Column C COLUMN D COLUMN E
Additions
(1) (2)
Balance at Charged to Charged to Balance
Description beginning costs and other accounts - Deductions - end
of period expenses describe describe of period
1994
Allowance for doubtful
accounts $14,736 $12,233 $853 (a) $9,453(b) $21,975
$3,606 (c)
1993
Allowance for doubtful
accounts 12,519 9,678 549 (a) 8,010 (b) 14,736
1992
Allowance for doubtful
accounts 11,212 6,347 467 (a) 5,507 (b) 12,519
(a) Recovery of amounts
previously written off
(b) Uncollectible accounts
written off
(c) Acquisition of Hall-Mark
INDEX TO EXHIBITS
Sequentially
Exhibit Numbered
Number Exhibit Page
11. Statement regarding computation of per share earnings 49
21. List of subsidiaries of the Registrant. 50
23. Consent of Arthur Anderson LLP. 51