-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, NtbXqW6zBnw8wUJH4z7l57Vtca/e4unYY8EVWmfq5+CT5EUoWZ2CFNA87fJuvXYK YNfqSGG5GuKS7HDD2GKyng== 0000008858-94-000019.txt : 19940928 0000008858-94-000019.hdr.sgml : 19940928 ACCESSION NUMBER: 0000008858-94-000019 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19940701 FILED AS OF DATE: 19940927 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AVNET INC CENTRAL INDEX KEY: 0000008858 STANDARD INDUSTRIAL CLASSIFICATION: 5065 IRS NUMBER: 111890605 STATE OF INCORPORATION: NY FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-04224 FILM NUMBER: 94550366 BUSINESS ADDRESS: STREET 1: 80 CUTTER MILL RD - 5TH FL CITY: GREAT NECK STATE: NY ZIP: 11021 BUSINESS PHONE: 5164667000 10-K 1 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 EX-11 2 COMPUTATION OF EPS EXHIBIT 11 AVNET, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE (Thousands except per share data) (A) In computing earnings per share, common shares issuable upon the exercise of outstanding stock options have been considered as common equivalent shares. In computing earnings per share in fiscal 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.
Years Ended July 1, June 30, June 30, 1994 1993 1992 TABLE A - Computation of earnings per share: Weighted average number of common shares 40,590 35,592 35,494 Common equivalent shares: Conversion of 6% Convertible Subordinated Debentures -- 2,449 -- Issuance of incentive shares and exercise of employee's stock options, using treasury stock method 257 212 172 Common and common equivalent shares used to compute earnings per share 40,847 38,253 35,666 Income before cumulative effect of a change in accounting principle $88,108 $69,060 $50,522 Interest expense on convertible debentures - net of tax -- 3,847 -- Income used for computing earnings per share before cumulative effect of a change in accounting principle 88,108 72,907 50,522 Cumulative effect of a change in the method of accounting for income taxes (2,791) -- -- Income used for computing earnings per share $85,317 $72,907 $50,522 Earnings per common share based upon the weighted average number of shares outstanding during the year: 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 (0.07) -- -- Net income $2.09 $1.91 $1.42
EX-21 3 EXHIBIT 21 AVNET, INC. AND SUBSIDIARIES SUBSIDIARIES OF AVNET, INC. JURISDICTION NAME OF INCORPORATION AB Avnet EMG which includes eight subsidiaries Sweden Allied Electronics, Inc. Delaware Avnet, Inc. Delaware Avnet Computer Technologies, Inc. Delaware Avnet Computer Technologies Leasing, Inc. Delaware AVNET E 2000 GmbH elektronische Bauelemente which includes a group of five companies Germany Avnet Electronic Marketing Group SRL Italy Avnet EMG Ltd. which includes seven subsidiaries England Avnet France, S.A. which includes four subsidiaries France Avnet Holding Germany GmbH Germany Avnet Industries (Malaysia) SDN. BHD. Malaysia Avnet International (Canada) Ltd. does business as: Ontario Hamilton Hallmark Hall-Mark Computer Products Avnet Computer Avnet Leasing Center Mechanics Choice Canada Time Electronics Avnet Marketing Services California Avnet International (Taiwan) Ltd. Taiwan Avnet Properties Corporation Delaware Avnet-Time Limited England Brownell Electro, Inc. New York Channel Master (Holdings) Limited England Channel Master (UK) Limited England Channel Master Communications, Inc. Delaware Channel Master Satellite Systems, Inc. New York Disti Export Trading Corp. Barbados Duso Advertising, Inc. New York Electro Air PTE Ltd. Singapore Freeman Products, Inc. Delaware Optional Systems Resource, Inc. Delaware Pen-Stock, Inc. California TEG Communications, Inc. New York Texas Freeman Products, Inc. Texas Time Electronics of California, Inc. California EX-23 4 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS As independent public accountants, we hereby consent to the incorporation by reference of our report dated August 10, 1994 included in this Form 10-K in the Registration Statement No. 33-62462 on Form S-4 relating to common stock of Avnet, Inc. and Registration Statements, No. 2-84883, No. 2-96800, No. 33-29475, No. 33-43855 and No. 2-94916 on Forms S-8 relating to common stock of Avnet, Inc. issuable under the 1981, 1984, 1988 and 1990 Stock Option Plans and the Avnet Incentive Stock Program respectively. s/ARTHUR ANDERSEN LLP New York, New York September 27, 1994 EX-27 5
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AND INCOME STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 YEAR JUL-01-1994 JUL-01-1994 53,876 0 595,544 21,975 627,022 1,264,081 283,406 168,260 1,787,687 376,097 303,075 41,104 0 0 1,067,411 1,787,687 3,547,743 3,552,529 2,851,681 2,851,681 49,829 0 14,733 154,838 66,730 88,108 0 2,791 0 85,317 2.09 2.09
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