UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________________
Form 10-K
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the fiscal year ended June 29, 2013
or
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from to
Commission file number 1-4224
Avnet, Inc.
(Exact name of registrant as specified in its charter)
New York (State or other jurisdiction of incorporation or organization) | 11-1890605 (I.R.S. Employer Identification No.) |
2211 South 47th Street, Phoenix, Arizona (Address of principal executive offices) | 85034 (Zip Code) |
Registrant’s telephone number, including area code (480) 643-2000
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 | |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
The aggregate market value (approximate) of the registrant’s common equity held by non-affiliates based on the closing price of a share of the registrant’s common stock for New York Stock Exchange composite transactions on December 28, 2012 (the last business day of the registrant’s most recently completed second fiscal quarter) was $4,058,517,453.
As of July 26, 2013, the total number of shares outstanding of the registrant’s Common Stock was 137,153,362 shares, net of treasury shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement (to be filed pursuant to Reg. 14A) relating to the Annual Meeting of Shareholders anticipated to be held on November 8, 2013 are incorporated herein by reference in Part III of this Report.
TABLE OF CONTENTS
Page | |
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PART I
Item 1. Business
Avnet, Inc., incorporated in New York in 1955, together with its consolidated subsidiaries (the “Company” or “Avnet”), is one of the world’s largest value-added distributors, based on sales, of electronic components, enterprise computer and storage products, IT services and embedded subsystems. Avnet creates a vital link in the technology supply chain that connects the world’s leading electronic component and computer product manufacturers and software developers with a global customer base of original equipment manufacturers (“OEMs”), electronic manufacturing services (“EMS”) providers, original design manufacturers (“ODMs”), and value-added resellers (“VARs”). Avnet distributes electronic components, computer products and software, as received from its suppliers or through a customized solution, and offers assembly and other value-added services. In addition, Avnet provides engineering design, materials management and logistics services, system integration and configuration, and supply chain services customized to meet specific requirements of both customers and suppliers.
Organizational Structure
Avnet has two primary operating groups — Electronics Marketing (“EM”) and Technology Solutions (“TS”). Both operating groups have operations in each of the three major economic regions of the world: the Americas; Europe, the Middle East and Africa (“EMEA”); and Asia/Pacific, consisting of Asia, Australia and New Zealand (“Asia” or “Asia/Pac”). Each operating group has its own management team led by a group president and includes regional presidents and senior executives within the operating group who manage various functions within the businesses. Each operating group also has distinct financial reporting that is evaluated at the corporate level on which operating decisions and strategic planning for the Company as a whole are made. Divisions exist within each operating group that serve primarily as sales and marketing units to further streamline the sales and marketing efforts within each operating group and enhance each operating group’s ability to work with its customers and suppliers, generally along more specific product lines or geographies. However, each division relies heavily on the support services provided by the operating group as well as centralized support at the corporate level.
Avnet’s operating groups and their sales are as follows:
Region | Fiscal 2013 Sales | Percentage of Sales | ||||
(Millions) | ||||||
EM Americas | $ | 5,263.8 | 20.7 | % | ||
EM EMEA | 4,096.0 | 16.1 | ||||
EM Asia | 5,734.6 | 22.5 | ||||
Total EM | 15,094.4 | 59.3 | ||||
TS Americas | 5,452.8 | 21.4 | ||||
TS EMEA | 3,181.9 | 12.5 | ||||
TS Asia | 1,729.8 | 6.8 | ||||
Total TS | 10,364.5 | 40.7 | ||||
Total Avnet | $ | 25,458.9 | 100.0 | % | ||
A description of each operating group and its businesses is presented below. Further financial information by operating group and geography is provided in Note 16 to the consolidated financial statements appearing in Item 15 of this Report.
Electronics Marketing
EM markets and sells semiconductors, interconnect, passive and electromechanical devices (“IP&E”) and embedded products for the world’s leading electronic component manufacturers. EM markets and sells its products and services to a diverse customer base serving many end-markets including automotive, communications, computer hardware and peripherals, industrial and manufacturing, medical equipment, and defense and aerospace. EM also offers an array of value-added services that help customers evaluate, design-in and procure electronic components throughout the lifecycle of their technology products and systems. By working with EM, customers and suppliers can accelerate their time to market and realize cost efficiencies in both the design and manufacturing process.
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EM Design Chain Services
EM offers design chain services that provide engineers a host of technical design solutions in support of the sales process of complex products and technologies. With access to a suite of design tools and engineering services from any point in the design cycle, customers can get product specifications along with evaluation kits and reference designs that enable a broad range of applications from concept through detailed design including new product introduction. EM also offers engineering and technical resources deployed globally to support product design, bill of materials development, design services and technical education and training. By utilizing EM’s design chain services, customers can optimize their component selection and accelerate their time to market.
EM Supply Chain Services
EM supply chain services provide end-to-end solutions focused on OEMs, EMS providers and electronic component manufacturers, enabling them to optimize supply chains on a local, regional or global basis. By combining internal competencies in global warehousing and logistics, finance, information technology and asset management with its global footprint and extensive partner relationships, EM’s supply chain services develop a deeper level of engagement with its customers. These customers can continuously manage their supply chains to meet the demands of a competitive environment globally without a commensurate investment in physical assets. With proprietary planning tools and a variety of inventory management solutions, EM can provide unique solutions that meet a customer’s just-in-time requirements in a variety of scenarios including lean manufacturing, demand flow and outsourcing.
Embedded Solutions
In the Americas, Avnet Embedded provides embedded computing solutions including technical design, integration and assembly to developers of application-specific computing solutions in the non-PC market. Customers include OEMs targeting the medical, telecommunications, industrial and digital editing markets.
EM Sales and Marketing Divisions
Each of EM’s regions has sales and marketing divisions that generally focus on a specific customer segment, particular product lines or a specific geography. The divisions offer access to one of the industry’s broadest line cards and convenient one-stop shopping with an emphasis on responsiveness, engineering support, on-time delivery and quality. Certain specialty services are made available to the individual divisions through common support service units. Customers are further supported by a sophisticated e-Commerce platform, Avnet Express, which includes a host of powerful functions such as parametric search capabilities for component part selection, bill of material optimization and component cross-referencing. The site enables end-to-end online service from part and inventory searches, price checking and ordering to online payment. EM Americas addresses the needs of its customers and suppliers through focused channels to service small- to medium-sized customers, global customers, defense and aerospace customers and contract manufacturers. In EMEA, divisions, which are organized by semiconductors, IP&E products and supply chain services, address customers on both a pan-European and regional basis. EM Asia goes to market with sales and marketing divisions within China, South Asia, Australia, New Zealand and Taiwan. EM Japan has sales and marketing divisions to serve Japanese OEMs in Japan, Southeast Asia and China. All regions within EM provide the design chain services and supply chain services described above.
Technology Solutions
As a leading global IT solutions distributor, TS focuses on the value-added distribution of enterprise computing servers and systems, software, storage, services and complex solutions from the world’s foremost technology manufacturers. TS partners with its customers and suppliers to create and deliver effective data center and IT lifecycle solutions that solve the business challenges of end-user customers locally and around the world. TS serves a number of customer segments, from VARs, system integrators ("SIs") and independent software vendors ("ISVs") to the worldwide OEM market for computing technology and non-PC OEMs requiring embedded systems and solutions including engineering, product prototyping, integration and other value-added services. TS also provides the latest hard disk drives, microprocessor, motherboard and DRAM module technologies to manufacturers of general-purpose computers and system builders. TS has dedicated sales and marketing teams serving these customer segments.
Customers rely on TS' supplier relationships and experienced sales, marketing, technical and financial experts to help them identify and capitalize on business opportunities in high-growth technology, vertical markets and geographic services to close deals quickly and profitably. Suppliers rely on TS' technology expertise and global scale and scope to broaden their customer base and grow sales in markets around the world. TS has built an ecosystem of highly-trained and knowledgeable VARs who serve as extensions of suppliers' sales forces to deliver complex IT solutions. Unique to Avnet is its proven SolutionsPath® methodology, which offers market-specific business analysis and planning, training and enablement, and ongoing support to help partners quickly
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and cost effectively attain solution-selling expertise they can use to develop and deploy an array of data center solutions for high-growth market segments. Avnet SolutionsPath® includes practices dedicated to vertical markets such as healthcare, government, energy, banking and retail, as well as technology practices focused on virtualization, storage, networking, security, unified communications, mobility and cloud computing.
TS also provides a robust portfolio of software, IT lifecycle and educational service offerings that expand customers' solution delivery capabilities, extend their reach and resources, and enhance project success and return on investment for deployments throughout the IT lifecycle. The TS team sells and delivers complex IT solutions to a variety of channel partners, including VARs, ISVs, SIs and OEMs. Areas of expertise include infrastructure and application management, business commerce and analytics, cloud enablement, aftermarket and IT lifecycle services, and multilingual vendor accredited training. To continue to meet customer expectations in an evolving IT ecosystem, TS is also focused on delivering single and multi-vendor converged systems.
TS continues to invest in geographic, technology and vertical markets with high growth potential via strategic, value-creating acquisitions and organic local market development. These investments ensure that TS has the critical scale and local market expertise in place when and where its customers and suppliers want to do business so that they can capture opportunities quickly and with less risk and cost.
Foreign Operations
As noted in the operating group discussions, Avnet has significant operations in all three major economic regions of the world: the Americas, EMEA and Asia/Pacific. The percentage of Avnet’s consolidated sales by region is presented in the following table:
Percentage of Sales for Fiscal Year | |||||
Region | 2013 | 2012 | 2011 | ||
Americas | 42% | 45% | 43% | ||
EMEA | 29 | 29 | 32 | ||
Asia/Pac | 29 | 26 | 25 | ||
100% | 100% | 100% | |||
Avnet’s foreign operations are subject to a variety of risks. These risks are discussed further under Risk Factors in Item 1A and under Quantitative and Qualitative Disclosures About Market Risk in Item 7A of this Report. Additionally, the specific translation impacts of foreign currency fluctuations, most notably the Euro, on the Company’s consolidated financial statements are further discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of this Report.
Acquisitions
Avnet has historically pursued a strategic acquisition program to further its strategic objectives and support key business initiatives. This program was a significant factor in Avnet becoming one of the largest value-added distributors of electronic components, enterprise computer and storage products, IT services and embedded subsystems. Avnet expects to continue to pursue strategic acquisitions to expand its market presence, increase its scale and scope, and increase its product or service offerings.
During fiscal 2013, the Company completed 12 acquisitions with aggregate annualized revenue of approximately $1.18 billion. See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II of this Form 10-K for additional information on acquisitions completed during fiscal 2013, 2012 and 2011.
Major Products
One of Avnet’s competitive strengths is the breadth and quality of the suppliers whose products it distributes. IBM products accounted for approximately 12%, 11% and 12% of the Company’s consolidated sales during fiscal 2013, 2012 and 2011,
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respectively, and was the only supplier from which sales of its products exceeded 10% of consolidated sales. Listed in the table below are the major product categories and the Company’s approximate sales of each during the past three fiscal years:
Years Ended | |||||||||||
June 29, 2013 | June 30, 2012 | July 2, 2011 | |||||||||
(Millions) | |||||||||||
Semiconductors | $ | 13,720.8 | $ | 13,461.6 | $ | 14,149.3 | |||||
Computer products | 9,346.0 | 9,984.4 | 10,284.6 | ||||||||
Connectors | 687.6 | 667.5 | 1,041.4 | ||||||||
Passives, electromechanical and other | 1,704.5 | 1,594.0 | 1,059.1 | ||||||||
$ | 25,458.9 | $ | 25,707.5 | $ | 26,534.4 | ||||||
Competition & Markets
The electronic components and computer products industries continue to be extremely competitive and are subject to rapid technological advances. The Company’s major competitors include Arrow Electronics, Inc., Future Electronics and World Peace Group, and, to a lesser extent, Ingram Micro, Inc. and Tech Data Corp. There are also certain smaller, specialized competitors who generally focus on narrower markets, products or particular sectors. As a result of these factors, Avnet must remain competitive in its pricing of goods and services.
A key competitive factor in the electronic component and computer product distribution industry is the need to carry a sufficient amount of inventory to meet customers’ rapid delivery requirements. To minimize its exposure related to valuation of inventory on hand, the majority of the Company’s products are purchased pursuant to non-exclusive distributor agreements, which typically provide certain protections for product obsolescence and price erosion. These agreements are generally cancelable upon 30 to 180 days’ notice and, in most cases, provide for inventory return privileges upon cancellation. In addition, the Company enhances its competitive position by offering a variety of value-added services, which entail the performance of services and/or processes tailored to individual customer specifications and business needs such as point of use replenishment, testing, assembly, supply chain management and materials management. For the year ended June 29, 2013, sales of services constituted less than 10% of our total revenues.
A competitive advantage is the size of the supplier base. Because of the number of Avnet’s suppliers, many customers can simplify their procurement process and make all of their required purchases from Avnet, rather than purchasing from several different vendors.
Seasonality
Historically, Avnet’s business has not been materially impacted by seasonality, with the exception of a relatively minor impact on consolidated results from the growth in revenues in the TS business during the December quarter primarily driven by the calendar year end of key suppliers and customers.
Number of Employees
At June 29, 2013, Avnet had approximately 18,500 employees.
Available Information
The Company files its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and other documents with the U.S. Securities and Exchange Commission (“SEC”) under the Securities Exchange Act of 1934. A copy of any document the Company files with the SEC is available for review at the SEC’s public reference room, 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the public reference room by calling the SEC at 1-800-SEC-0330. The Company’s SEC filings are also available to the public on the SEC’s website at http://www.sec.gov and through the New York Stock Exchange (“NYSE”), 20 Broad Street, New York, New York 10005, on which the Company’s common stock is listed.
A copy of any of the Company’s filings with the SEC, or any of the agreements or other documents that constitute exhibits to those filings, can be obtained by request directed to the Company at the following address and telephone number:
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Avnet, Inc.
2211 South 47th Street
Phoenix, Arizona 85034
(480) 643-2000
Attention: Corporate Secretary
The Company also makes these filings available, free of charge, through its website (see “Avnet Website” below).
Avnet Website
In addition to the information about Avnet contained in this Report, extensive information about the Company can be found at www.avnet.com, including information about its management team, products and services and corporate governance practices.
The corporate governance information on the website includes the Company’s Corporate Governance Guidelines, the Code of Conduct and the charters for each of the committees of Avnet’s Board of Directors. In addition, amendments to the Code of Conduct, committee charters and waivers granted to directors and executive officers under the Code of Conduct, if any, will be posted in this area of the website. These documents can be accessed at www.avnet.com under the “Investor Relations — Corporate Governance” caption. Printed versions of the Corporate Governance Guidelines, Code of Conduct and charters of the Board committees can be obtained, free of charge, by writing to the Company at the address listed above in “Available Information.”
In addition, the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports, if any, filed or furnished pursuant to Section 13(a) or 15(d) of Securities Exchange Act of 1934, as well as Section 16 filings made by any of the Company’s executive officers or directors with respect to Avnet common stock, are available on the Company’s website (www.avnet.com under the “Investor Relations — SEC Filings” caption) as soon as reasonably practicable after the report is electronically filed with, or furnished to, the Securities and Exchange Commission.
These details about Avnet’s website and its content are only for information. The contents of the Company’s website are not, nor shall they be deemed to be, incorporated by reference in this Report.
Item 1A. Risk Factors
Forward-Looking Statements and Risk Factors
This Report contains forward-looking statements with respect to the financial condition, results of operations and business of Avnet. These statements are generally identified by words like “believes,” “expects,” “anticipates,” “should,” “will,” “may,” “estimates” or similar expressions. Forward-looking statements are subject to numerous assumptions, risks and uncertainties.
Except as required by law, Avnet does not undertake any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. Factors that may cause actual results to differ materially from those contained in the forward-looking statements include the following:
Economic weakness and uncertainty could adversely affect our results and prospects.
The Company's results, operations and prospects depend significantly on worldwide economic conditions, the demand for its products and services, and the financial condition of its customers and suppliers. Economic weakness and uncertainty, including ongoing macroeconomic issues in many countries, have in the past resulted, and may result in the future, in decreased revenues, margins, earnings and impairments to long-lived assets, including goodwill and other intangible assets. Economic weakness and uncertainty also make it more difficult for the Company to manage inventory levels and/or collect customer receivables, which may result in reduced access to liquidity and higher financing costs.
The electronics component and computer industries are highly competitive and if the Company fails to compete effectively, its revenues, gross profit margins and prospects may decline.
The market for the Company's products and services is very competitive and subject to rapid technological advances, new market entrants, changes in industry standards and changes in customer needs. Not only does the Company compete with other global distributors, it also competes for customers with regional distributors and some of the Company's own suppliers that maintain direct sales efforts. The Company's failure to maintain and enhance its competitive position could adversely affect its business and prospects. Furthermore, the Company's efforts to compete in the marketplace could cause deterioration of gross profit margins and, thus, overall profitability.
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The size of the Company's competitors vary across market sectors, as do the resources the Company has allocated to the sectors and geographic areas in which it does business. Therefore, some competitors may have greater financial, personnel, capacity and other resources or a more extensive customer base than the Company has in one or more of its market sectors and geographic areas, which may result in the Company not being able to effectively compete in certain markets which could impact the Company's profitability and prospects.
An industry down-cycle in semiconductors could significantly affect the Company's operating results as a large portion of revenues come from sales of semiconductors, which is a highly cyclical industry.
The semiconductor industry historically has experienced periodic fluctuations in product supply and demand, often associated with changes in technology and manufacturing capacity, and is generally considered to be highly cyclical. During each of the last three fiscal years, sales of semiconductors represented over 50% of the Company's consolidated sales, and the Company's revenues, particularly those of EM, closely follow the strength or weakness of the semiconductor market. Future downturns in the technology industry, particularly in the semiconductor sector, could negatively affect the Company's operating results and negatively impact the Company's ability to maintain its current profitability levels.
Failure to maintain its relationships with key suppliers could adversely affect the Company’s sales.
One of the Company's competitive strengths is the breadth and quality of the suppliers whose products the Company distributes. However, sales of products and services from one of the Company's suppliers, IBM, accounted for approximately 12% of the Company's consolidated sales in fiscal year 2013. Management expects IBM products and services to continue to account for roughly a similar percentage of the Company's consolidated sales in fiscal year 2014. The Company's contracts with its suppliers, including those with IBM, vary in duration and are generally terminable by either party at will upon notice. To the extent IBM or other primary suppliers significantly reduce their volume of business with the Company in the future, because of a product shortage, an unwillingness to do business with Avnet, or otherwise, the Company's business and relationships with its customers could be materially and adversely affected because its customers depend on the Company's distribution of electronic components and computer products from the industry's leading suppliers. In addition, to the extent that any of the Company's key suppliers modify the terms of their contracts including, without limitation, the terms regarding price protection, rights of return, rebates or other terms that protect or enhance the Company's gross margins, it could materially and adversely affect the Company's results of operations, financial condition or liquidity.
The Company's non-U.S. locations represent a significant portion of its revenue, and consequently, the Company is increasingly exposed to risks associated with operating internationally.
During fiscal year 2013, 2012 and 2011, approximately 63%, 61% and 62%, respectively, of the Company's sales came from its operations outside the United States. As a result of the Company's foreign sales and locations, in particular those in emerging and developing economies, the Company's operations are subject to a variety of risks that are specific to international operations, including, but not limited to, the following:
• | potential restrictions on the Company's ability to repatriate funds from its foreign subsidiaries; |
• | foreign currency and interest rate fluctuations and the impact on the Company's reported results of operations; |
• | import and export duties and value-added taxes; |
• | compliance with foreign and domestic import and export regulations, data privacy regulations, business licensing requirements, environmental regulations and anti-corruption laws, the failure of which could result in severe penalties including monetary fines, criminal proceedings and suspension of import or export privileges; |
• | changing tax laws and regulations; |
• | regulatory requirements and prohibitions that differ between jurisdictions; |
• | economic and political instability, terrorism and potential military conflicts or civilian unrest; |
• | fluctuations in freight costs, limitations on shipping and receiving capacity, and other disruptions in the transportation and shipping infrastructure; |
• | natural disasters and health concerns; |
• | differing environmental regulations and employment practices and labor issues; and |
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• | the risk of non-compliance with local laws. |
In addition to the cost of compliance, the potential criminal penalties for violations of export regulations and anti-corruption laws by the Company or its third-party agents create heightened risks for the Company's international operations. In the event that a governing regulatory body determined that the Company had violated applicable import or export regulations or anti-corruption laws, the Company could be fined significant sums, incur sizable legal defense costs and/or its import or export capabilities could be restricted, which could have a material and adverse effect on the Company's business. Additionally, allegations that the Company has violated a governmental regulation may negatively impact the Company's reputation, which may result in customers or suppliers being unwilling to do business with the Company. While the Company has adopted measures designed to ensure compliance with these laws, the Company cannot be assured that such measures will be adequate or that its business will not be materially and adversely impacted in the event of an alleged violation.
The Company's acquisition strategy may not produce the expected benefits, which may adversely affect the Company's results of operations.
Avnet has made, and expects to continue to make, strategic acquisitions or investments in companies around the world to further its strategic objectives and support key business initiatives. Acquisitions and investments involve risks and uncertainties, some of which may differ from those associated with Avnet's historical operations. The risks relating to such transactions include, but are not limited to, risks relating to expanding into emerging markets and business areas, adding additional product lines and services, incurring unanticipated costs or liabilities associated with the companies acquired and diverting management's attention from existing business operations. As a result, the Company's profitability may be negatively impacted. In addition, the Company may not be successful in integrating the acquired businesses or the integration may be more difficult, costly or time-consuming than anticipated. Further, any litigation relating to a potential acquisition will result in an increase in the expenses associated with the acquisition or cause a delay in completing the acquisition, thereby impacting the Company's profitability. The Company may experience disruptions that could, depending on the size of the acquisition, have a material adverse effect on its business, especially where an acquisition target may have pre-existing non-compliance or pre-existing deficiencies or material weaknesses in internal controls as those terms are defined under relevant SEC rules and regulations. Furthermore, the Company may not realize all of the anticipated benefits from its acquisitions, which could materially and adversely affect the Company's financial performance.
Major disruptions to the Company’s logistics capability could have a material adverse impact on the Company’s operations.
The Company's global logistics services are operated through specialized, centralized or outsourced distribution centers around the globe. The Company also depends almost entirely on third-party transportation service providers for the delivery of products to its customers. A major interruption or disruption in service at one or more of its distribution centers for any reason (such as natural disasters, pandemics, or significant disruptions of services from our third-party providers) could cause cancellations or delays in a significant number of shipments to customers and, as a result, could have a severe impact on the Company's business, operations and financial performance.
If the Company’s internal information systems fail to function properly, or if the Company is unsuccessful in the integration or upgrade of information systems, its business operations could suffer.
The Company's expanding operations put increasing pressure on the Company's information systems to facilitate the day-to-day operations of the business and to produce timely, accurate and reliable reports on financial and operational results. Currently, the Company's global operations are tracked with multiple information systems, some of which are subject to ongoing IT projects designed to streamline or optimize the Company's global information systems. There is no guarantee that the Company will be successful at all times in these efforts or that there will not be integration difficulties that will adversely affect the Company's ability to complete business transactions timely or the accurate and timely recording and reporting of financial data. In addition, the Company's information technology is subject to cybersecurity breaches, computer hacking or other general system failures. Maintaining and operating these systems requires continuous investments. A security breach could result in sensitive data being manipulated or exposed to unauthorized persons or to the public. A failure of any of these information systems in a way described above or material difficulties in upgrading these information systems could have material adverse effects on the Company's business and its compliance with reporting obligations under federal securities laws.
Declines in the value of the Company's inventory or unexpected order cancellations by the Company's customers could materially and adversely affect its business, results of operations, financial condition and liquidity.
The electronic components and computer products industries are subject to rapid technological change, new and enhanced products, changes in customer needs and changes in industry standards, which can contribute to a decline in value or obsolescence of inventory. Regardless of the general economic environment, it is possible that prices will decline due to a decrease in demand or an oversupply of products and, as a result of the price declines, there may be greater risk of declines in inventory value. Although
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it is the policy of many of the Company's suppliers to offer distributors like Avnet certain protections from the loss in value of inventory (such as price protection and limited rights of return), the Company cannot be assured that such policies will fully compensate for the loss in value, or that the vendors will choose to, or be able to, honor such agreements, some of which are not documented and, therefore, subject to the discretion of the vendor. In addition, the majority of the Company's sales are typically made pursuant to individual purchase orders, and the Company generally does not have long-term supply arrangements with its customers. Generally, the Company's customers may cancel orders 30 days prior to shipment with minimal penalties. The Company cannot be assured that unforeseen new product developments, declines in the value of the Company's inventory or unforeseen order cancellations by its customers will not materially and adversely affect the Company's business, results of operations, financial condition or liquidity.
Substantial defaults by the Company's customers on its accounts receivable or the loss of significant customers could have a significant negative impact on the Company's business, results of operations, financial condition or liquidity.
A significant portion of the Company's working capital consists of accounts receivable from customers. If customers responsible for a significant amount of accounts receivable were to become insolvent or otherwise unable to pay the amount they owe the Company, or were to become unwilling or unable to make such payments in a timely manner, the Company's business, results of operations, financial condition or liquidity could be adversely affected. An economic or industry downturn could adversely and materially affect the servicing of these accounts receivable, which could result in longer payment cycles, increased collection costs and defaults in excess of management's expectations. A significant deterioration in the Company's ability to collect on accounts receivable could also impact the cost or availability of financing under its accounts receivable securitization program (see Financing Transactions appearing in Item 7 of this Report).
The Company may not have adequate or cost-effective liquidity or capital resources.
The Company's ability to satisfy its cash needs depends on its ability to generate cash from operations and to access the financial markets, both of which are subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond the Company's control.
The Company may need to satisfy its cash needs through external financing. However, external financing may not be available on acceptable terms or at all. As of June 29, 2013, Avnet had total debt outstanding of approximately $2.05 billion under various notes and committed and uncommitted lines of credit with financial institutions. The Company needs cash to make interest payments on, and to refinance, this indebtedness and for general corporate purposes, such as funding its ongoing working capital and capital expenditure needs. Under the terms of any external financing, the Company may incur higher than expected financing expenses and become subject to additional restrictions and covenants. Any material increase in the Company's financing costs could have a material adverse effect on its profitability.
Under certain of its credit facilities, the Company is required to maintain certain specified financial ratios and meet certain tests. If the Company fails to meet these financial ratios and/or tests, it may be unable to continue to utilize these facilities. If the Company is unable to utilize these facilities, it may not have sufficient cash available to make interest payments on and refinance indebtedness and for general corporate needs. General economic or business conditions, domestic and foreign, may be less favorable than management expects and could adversely impact the Company's sales or its ability to collect receivables from its customers, which may impact access to the Company's securitization program.
The agreements governing some of the Company's financings contain various covenants and restrictions that limit the discretion of management in operating its business and could prevent us from engaging in some activities that may be beneficial to the Company's business.
The agreements governing the Company's financing, including its credit facility and the indentures governing the Company's outstanding notes, contain various covenants and restrictions that, in certain circumstances, limit the Company's ability, and the ability of certain subsidiaries, to:
• | grant liens on assets; |
• | make restricted payments (including paying dividends on capital stock or redeeming or repurchasing capital stock); |
• | make investments; |
• | merge, consolidate or transfer all or substantially all of the Company’s assets; |
• | incur additional debt; or |
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• | engage in certain transactions with affiliates. |
As a result of these covenants and restrictions, the Company may be limited in the future in how it conducts its business and may be unable to raise additional debt, compete effectively or make further investments.
The Company may become involved in intellectual property disputes that could cause it to incur substantial costs, divert the efforts of management or require it to pay substantial damages or licensing fees.
From time to time, the Company receives notifications alleging infringements of intellectual property rights allegedly held by others relating to the Company's business or the products or services it sells. Litigation with respect to patents or other intellectual property matters could result in substantial costs and diversion of management and other resources and could have an adverse effect on the Company's operations. Further, the Company may be obligated to indemnify and defend its customers if the products or services the Company sells are alleged to infringe any third-party's intellectual property rights. While the Company may be able to seek indemnification from its suppliers for itself and its customers against such claims, there is no assurance that it will be successful in obtaining such indemnification or that the Company will be fully protected against such claims. If an infringement claim is successful, the Company may be required to pay damages or seek royalty or license arrangements, which may not be available on commercially reasonable terms. The Company may have to stop selling certain products or services, which could affect its ability to compete effectively.
Failure to comply with the requirements of environmental regulations could adversely affect its business.
The Company is subject to various federal, state, local and foreign laws and regulations addressing environmental and other impacts from product disposal, use of hazardous materials in products, recycling of products at the end of their useful life and other related matters. While the Company strives to ensure it is in full compliance with all applicable regulations, certain of these regulations impose liability without fault. Additionally, the Company may be held responsible for the prior activities of an entity it acquired. Failure to comply with these regulations could result in substantial costs, fines and civil or criminal sanctions, as well as third-party claims for property damage or personal injury. Further, environmental laws may become more stringent over time, imposing greater compliance costs and increasing risks and penalties associated with violations.
Tax legislation initiatives or challenges to the Company's tax positions could impact the Company's results of operations and financial condition.
As a multinational corporation, the Company is subject to the tax laws and regulations of the United States federal, state and local governments and of many international jurisdictions. From time to time, legislation may be enacted that could adversely affect the Company's tax positions. There can be no assurance that our effective tax rate and the resulting cash flow will not be adversely affected by these potential changes in regulations. The tax laws and regulations of the various countries where the Company has operations are extremely complex and subject to varying interpretations. Although the Company believes that its historical tax positions are sound and consistent with applicable laws, regulations and existing precedent, there can be no assurance that these tax positions will not be challenged by relevant tax authorities or that the Company would be successful in any such challenge.
If the Company fails to maintain effective internal controls, it may not be able to report its financial results accurately or timely or prevent or detect fraud, which could have a material adverse effect on the Company’s business or the market price of the Company's securities.
Effective internal controls are necessary for the Company to provide reasonable assurance with respect to its financial reports and to effectively prevent or detect fraud. If the Company cannot provide reasonable assurance with respect to its financial reports and effectively prevent or detect fraud, its brand and operating results could be harmed. Pursuant to the Sarbanes-Oxley Act of 2002, the Company is required to furnish a report by management on internal control over financial reporting, including management's assessment of the effectiveness of such control. Internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud. Therefore, even effective internal controls cannot provide absolute assurance with respect to the preparation and fair presentation of financial statements. In addition, projections of any evaluation of effectiveness of internal control over financial reporting to future periods are subject to the risk that the control may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. If the Company fails to maintain the adequacy of its internal controls, including any failure to implement required new or improved controls, or if the Company experiences difficulties in their implementation, the Company's business and operating results could be harmed, and the Company could fail to meet its reporting obligations, which could have a material adverse effect on its business or the market price of the Company's securities.
11
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2. Properties
The Company owns and leases approximately 1,558,000 and 6,391,000 square feet of space, respectively, of which approximately 42% is located in the United States. The following table summarizes certain of the Company’s key facilities.
Location | Sq. Footage | Leased or Owned | Primary Use | ||||
Poing, Germany | 423,000 | Leased | EM warehousing, value-added operations and offices | ||||
Chandler, Arizona | 399,000 | Owned | EM warehousing and value-added operations | ||||
Tongeren, Belgium | 388,000 | Owned | EM and TS warehousing and value-added operations | ||||
Grove City, Ohio | 297,000 | Leased | EM warehousing, integration and value-added operations | ||||
Poing, Germany | 296,000 | Owned | EM warehousing, value-added operations and offices | ||||
Groveport, Ohio | 266,000 | Leased | TS warehousing, integration and value-added operations | ||||
Chandler, Arizona | 231,000 | Leased | EM warehousing, integration and value-added operations | ||||
Atlanta, Georgia | 195,000 | Leased | TS warehousing, integration and value-added operations | ||||
Hong Kong, China | 181,000 | Leased | EM warehousing and value-added operations | ||||
Phoenix, Arizona | 176,000 | Leased | Corporate and EM headquarters | ||||
Coppell, Texas | 174,000 | Leased | EM warehousing, integration and value-added operations | ||||
Nettetal, Germany | 137,000 | Owned | EM warehousing, value-added operations and offices | ||||
Tempe, Arizona | 132,000 | Leased | TS headquarters | ||||
Nettetal, Germany | 126,000 | Owned | TS warehousing, value-added operations and offices | ||||
Nogales, Mexico | 124,000 | Leased | EM warehousing and value-added operations | ||||
Item 3. Legal Proceedings
As a result primarily of certain former manufacturing operations, Avnet has incurred and may have future liability under various federal, state and local environmental laws and regulations, including those governing pollution and exposure to, and the handling, storage and disposal of, hazardous substances. For example, under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (“CERCLA”) and similar state laws, Avnet is and may be liable for the costs of cleaning up environmental contamination on or from certain of its current or former properties, and at off-site locations where the Company disposed of wastes in the past. Such laws may impose joint and several liability. Typically, however, the costs for cleanup at such sites are allocated among potentially responsible parties based upon each party’s relative contribution to the contamination, and other factors.
Pursuant to SEC regulations, including but not limited to Item 103 of Regulation S-K, the Company regularly assesses the status of and developments in pending environmental legal proceedings to determine whether any such proceedings should be identified specifically in this discussion of legal proceedings, and has concluded that no particular pending environmental legal proceeding requires public disclosure. Based on the information known to date, management believes that the Company has appropriately accrued in its consolidated financial statements for its share of the estimated costs of environmental matters.
The Company is also party to various other lawsuits, claims, investigations and other legal proceedings arising from time to time in the normal course of business. While litigation is subject to inherent uncertainties, management currently believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not have a material adverse effect on the Company’s financial position, liquidity or results of operations.
Item 4. Mine Safety Disclosures
Not applicable.
12
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market price per share
The Company’s common stock is listed on the New York Stock Exchange under the symbol AVT. Quarterly high and low sales closing prices (as reported for the New York Stock Exchange composite transactions) for the last two fiscal years were:
2013 | 2012 | ||||||||||||||
Fiscal Quarters | High | Low | High | Low | |||||||||||
1st | $ | 33.51 | $ | 28.91 | $ | 32.86 | $ | 24.19 | |||||||
2nd | 31.62 | 27.01 | 31.73 | 24.77 | |||||||||||
3rd | 36.86 | 30.61 | 36.83 | 31.02 | |||||||||||
4th | 35.39 | 31.54 | 36.65 | 29.23 | |||||||||||
The Company did not pay any dividends on its common stock during the last two fiscal years. Any future decision to declare or pay dividends will be at the discretion of the Board of Directors and will be dependent upon the Company's financial condition, results of operations, capital requirements, and such other factors as the Board of Directors deems relevant. In addition, certain of the Company's debt facilities contain restrictions on the declaration and payment of dividends.
Record Holders
As of July 26, 2013, there were 3,330 registered holders of record of Avnet’s common stock.
Equity Compensation Plan Information as of June 29, 2013
Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) | |||||
(a) | (b) | (c) | ||||||
Equity compensation plans approved by security holders | 5,559,753 | (1) | $26.65 | 2,995,588 | (2) | |||
______________________
(1) | Includes 2,579,188 shares subject to options outstanding and 2,009,510 stock incentive shares and 971,055 performance shares awarded but not yet delivered. Included in the performance shares is the number of shares anticipated to be issued in the first quarter of fiscal 2014 relating to the level of achievement reached under the performance share program,that ended on June 29, 2013 (see Note 12 in the Notes to Consolidated Financial Statements included in Item 15 of this Report) |
(2) | Does not include 432,789 shares available for future issuance under the Employee Stock Purchase Plan, which is a non-compensatory plan. |
Stock Performance Graphs and Cumulative Total Returns
The graph below compares the cumulative 5-year total return of holders of Avnet, Inc.’s common stock with the cumulative total returns of the S&P 500 index and certain of Avnet’s peer companies in the electronics distribution industry. The graph tracks the performance of a $100 investment in Avnet’s common stock, in the peer group, and the index (with the reinvestment of all dividends) from June 28, 2008 to June 29, 2013. The companies comprising the peer group that Avnet has historically used are: Agilysys, Inc., Anixter International, Inc., Arrow Electronics, Inc., Ingram Micro, Inc., Insight Enterprises, Inc., Scansource, Inc., Synnex Corp. and Tech Data Corp. Brightpoint, Inc. terminated its registration with the SEC as a result of it being acquired and, therefore, is not included in the graph below.
13
6/28/2008 | 6/27/2009 | 7/3/2010 | 7/2/2011 | 6/30/2012 | 6/29/2013 | ||||||
Avnet, Inc. | 100.00 | 78.11 | 87.04 | 118.15 | 112.01 | 121.96 | |||||
S&P 500 | 100.00 | 73.79 | 84.43 | 110.35 | 116.36 | 140.32 | |||||
Peer Group | 100.00 | 82.26 | 83.84 | 125.55 | 112.07 | 130.55 | |||||
The stock price performance included in this graph is not necessarily indicative of future stock price performance. The Company does not make or endorse any predictions as to future stock performance. The performance graph is furnished solely to accompany this Report and is not being filed for purposes of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
Issuer Purchases of Equity Securities
In August 2011, the Company's Board of Directors (the "Board") approved the repurchase of up to $500.0 million of the Company's common stock through a share repurchase program. During August 2012, the Board approved an additional $250.0 million for the share repurchase program. With this increase, the Company may repurchase up to a total of $750.0 million of the Company's common stock under the share repurchase program. The following table includes, if any, the Company's monthly purchases of Avnet's common stock during the fourth quarter ended June 29, 2013 under the share repurchase program, which is
14
part of a publicly announced plan, and purchases made on the open market to obtain shares for the Company's Employee Stock Purchase Plan (“ESPP”), which is not part of a publicly announced plan:
Period | Total Number of Shares Purchased(1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs | ||||||
April | 5,600 | $33.86 | — | $224,475,000 | ||||||
May | 5,500 | $32.82 | — | $224,475,000 | ||||||
June | 4,400 | $33.05 | — | $224,475,000 | ||||||
______________________
(1) | Consists entirely of purchases of Avnet’s common stock associated with the Company’s ESPP. |
Item 6. Selected Financial Data
Years Ended | ||||||||||||||||||||
June 29, 2013 | June 30, 2012 | July 2, 2011 | July 3, 2010 | June 27, 2009(a) | ||||||||||||||||
(Millions, except for per share and ratio data) | ||||||||||||||||||||
Income: | ||||||||||||||||||||
Sales | $ | 25,458.9 | $ | 25,707.5 | $ | 26,534.4 | $ | 19,160.2 | $ | 16,229.9 | ||||||||||
Gross profit | 2,979.8 | 3,050.6 | 3,107.8 | 2,280.2 | 2,023.0 | |||||||||||||||
Operating income (loss) | 626.0 | (b) | 884.2 | (c) | 930.0 | (d) | 635.6 | (e) | (1,019.0 | ) | (f) | |||||||||
Income tax provision | 99.2 | (b) | 223.8 | (c) | 201.9 | (d) | 174.7 | (e) | 34.7 | (f) | ||||||||||
Net income (loss) | 450.1 | (b) | 567.0 | (c) | 669.1 | (d) | 410.4 | (e) | (1,129.7 | ) | (f) | |||||||||
Financial Position: | ||||||||||||||||||||
Working capital(g) | 3,535.4 | 3,455.7 | 3,749.5 | 3,190.6 | 2,688.4 | |||||||||||||||
Total assets | 10,474.7 | 10,167.9 | 9,905.6 | 7,782.4 | 6,273.5 | |||||||||||||||
Long-term debt | 1,207.0 | 1,272.0 | 1,273.5 | 1,243.7 | 946.6 | |||||||||||||||
Shareholders’ equity | 4,289.1 | 3,905.7 | 4,056.1 | 3,009.1 | 2,760.9 | |||||||||||||||
Per Share: | ||||||||||||||||||||
Basic earnings (loss) | 3.26 | (b) | 3.85 | (c) | 4.39 | (d) | 2.71 | (e) | (7.49 | ) | (f) | |||||||||
Diluted earnings (loss) | 3.21 | (b) | 3.79 | (c) | 4.34 | (d) | 2.68 | (e) | (7.49 | ) | (f) | |||||||||
Book value per diluted share | 30.64 | 26.12 | 26.28 | 19.66 | 18.30 | |||||||||||||||
Ratios: | ||||||||||||||||||||
Operating income (loss) margin on sales | 2.5 | % | (b) | 3.4 | % | (c) | 3.5 | % | (d) | 3.3 | % | (e) | (6.3 | )% | (f) | |||||
Net income (loss) margin on sales | 1.8 | % | (b) | 2.2 | % | (c) | 2.5 | % | (d) | 2.1 | % | (e) | (7.0 | )% | (f) | |||||
Return on capital | 10.6 | % | (b) | 12.9 | % | (c) | 15.2 | % | (d) | 14.0 | % | (e) | (26.6 | )% | (f) | |||||
Quick | 1.2:1 | 1.2:1 | 1.2:1 | 1.4:1 | 1.5:1 | |||||||||||||||
Working capital | 1.7:1 | 1.7:1 | 1.8:1 | 1.9:1 | 2.1:1 | |||||||||||||||
Total debt to capital | 32.3 | % | 35.4 | % | 27.2 | % | 29.8 | % | 26.0 | % | ||||||||||
______________________
(a) | As adjusted for the retrospective application of an accounting standard. The Financial Accounting Standards Board issued authoritative guidance that requires the issuer of certain convertible debt instruments that may be settled in cash (or other assets) on conversion to separately account for the debt and equity (conversion option) components of the instrument. The standard requires the convertible debt to be recognized at the present value of its cash flows discounted using the non-convertible debt borrowing rate at the date of issuance. The resulting debt discount from this present value calculation is to be recognized as the value of the equity component and recorded to additional paid in capital. The discounted convertible debt is then required to be accreted up to its face value and recorded as non-cash interest expense over the expected life of the convertible debt. In addition, deferred financing costs associated with the convertible debt are required to be allocated between the debt and equity components based upon relative values. During the first quarter of fiscal 2010, the Company |
15
adopted this standard; however, there was no impact to the fiscal 2010 consolidated financial statements because the Company’s 2% Convertible Senior Debentures, to which this standard applied, were extinguished in fiscal 2009. Due to the required retrospective application of this standard to prior periods, the Company adjusted the prior period comparative consolidated financial statements. The following table summarizes the adjustments to increase (decrease) previously reported balances.
Adjustments-increase (decrease) | June 27, 2009 | |||
(Millions, except per share data) | ||||
Selling, general and administrative expenses | $ | (0.3 | ) | |
Interest expense | 12.2 | |||
Income tax provision | (4.6 | ) | ||
Net income | (7.3 | ) | ||
Basic EPS | $ | (0.05 | ) | |
Diluted EPS | $ | (0.05 | ) | |
______________________
(b) | Includes the impact of (i) restructuring, integration and other charges, which totaled $149.5 million pre-tax, $116.4 million after tax and $0.83 per share on a diluted basis; (ii) a gain on bargain purchase and other, which totaled $31.0 million pre-tax and after tax and $0.22 per share on a diluted basis; and (iii) a tax benefit of $50.4 million and $0.36 per share on a diluted basis primarily due to the release of certain tax valuation allowances net of additional tax reserves (see Note 9 and 17 in the Notes to the Consolidated Financial Statements contained in Item 15 of this Report for further discussion of these items). |
(c) | Includes the impact of (i) restructuring, integration and other charges, which totaled $73.6 million pre-tax, $53.0 million after tax and $0.35 per share on a diluted basis; (ii) a gain on bargain purchase and other, which totaled $2.9 million pre-tax, $3.5 million after tax and $0.02 per share on a diluted basis; and (iii) a tax benefit of $8.6 million and $0.06 per share on a diluted basis primarily due to the release of certain tax valuation allowances net of additional tax reserves (see Note 9 and 17 in the Notes to the Consolidated Financial Statements contained in Item 15 of this Report for further discussion of these items). |
(d) | Includes the impact of (i) restructuring, integration and other charges, which totaled $77.2 million pre-tax, $56.2 million after tax and $0.36 per share on a diluted basis; (ii) a gain on bargain purchase and other which totaled $22.7 million pre-tax, $25.7 million after tax and $0.17 per share on a diluted basis; and (iii) a tax benefit of $32.9 million and $0.21 per share on a diluted basis primarily due to the release of certain tax valuation allowances net of additional tax reserves (see Note 9 and 17 in the Notes to the Consolidated Financial Statements contained in Item 15 of this Report for further discussion of these items). |
(e) | Includes the impact of (i) restructuring, integration and other charges, which totaled $25.4 million pre-tax, $18.8 million after tax and $0.12 per share on a diluted basis; and (ii) a gain on sale of assets, which totaled $8.8 million pre-tax, $5.4 million after tax and $0.03 per share on a diluted basis. |
(f) | Includes (i) goodwill and intangible asset impairment charges of $1.41 billion pre-tax, $1.38 billion after tax and $9.13 per share; and (ii) the impact of restructuring, integration and other charges, which totaled $99.3 million pre-tax, $34.9 million after tax and $0.23 per share. |
(g) | This calculation of working capital is defined as current assets less current liabilities. |
16
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
For an understanding of Avnet and the significant factors that influenced the Company’s performance during the past three fiscal years, the following discussion should be read in conjunction with the description of the business appearing in Item 1 of this Report and the consolidated financial statements, including the related notes and schedule, and other information appearing in Item 15 of this Report. The Company operates on a “52/53 week” fiscal year. Fiscal 2013, 2012 and 2011 all contained 52 weeks.
There are references to the impact of foreign currency translation in the discussion of the Company’s results of operations. When the stronger U.S. Dollar exchange rates of the current year are used to translate the results of operations of Avnet’s subsidiaries denominated in foreign currencies, the resulting impact is a decrease in U.S. Dollars of reported results as compared with the prior period. When the U.S. Dollar weakens, the resulting impact is an increase in U.S. Dollars of reported results as compared with the prior period. In the discussion that follows, this is referred to as the “translation impact of changes in foreign currency exchange rates.”
In addition to disclosing financial results that are determined in accordance with U.S. generally accepted accounting principles (“GAAP”), the Company also discloses certain non-GAAP financial information, including:
• | Income or expense items as adjusted for the translation impact of changes in foreign currency exchange rates, as discussed above. |
• | Sales adjusted for certain items that impact the year-over-year analysis, which included the impact of acquisitions by adjusting Avnet’s prior periods to include the sales of businesses acquired as if the acquisitions had occurred at the beginning of the period presented. In addition, the prior year sales are adjusted for (i) two divestitures by adjusting Avnet’s prior periods to exclude the sales of the business divested as if the divestiture had occurred at the beginning of the period presented, and (ii) the transfer of the existing commercial components business from TS Americas to EM Americas that occurred in the first quarter of fiscal 2012 and the transfer of another business unit from TS Americas to EM Americas that was completed at the beginning of fiscal 2013. Sales taking into account the combination of these adjustments are referred to as “organic sales.” |
• | Operating income excluding restructuring, integration and other charges incurred in fiscal 2013, 2012 and 2011. The reconciliation to GAAP is presented in the following table: |
Years Ended | |||||||||||
June 29, 2013 | June 30, 2012 | July 2, 2011 | |||||||||
(Thousands) | |||||||||||
GAAP operating income | $ | 625,981 | $ | 884,165 | $ | 929,979 | |||||
Restructuring, integration and other | 149,501 | 73,585 | 77,176 | ||||||||
Adjusted operating income | $ | 775,482 | $ | 957,750 | $ | 1,007,155 | |||||
Management believes that providing this additional information is useful for the reader to better assess and understand operating performance, especially when comparing results with previous periods or forecasting performance for future periods. Furthermore, management typically monitors the business both including and excluding these items and uses these non-GAAP measures to establish operational goals and, in some cases, for measuring performance for compensation purposes. However, analysis of results and outlook on a non-GAAP basis should be used as a complement to, and in conjunction with, data presented in accordance with GAAP.
Results of Operations
Executive Summary
Revenue for fiscal 2013 was $25.46 billion, a decrease of 1.0% from fiscal 2012 revenue of $25.71 billion, and revenue on an organic basis was down 5.3% year over year. This decrease in revenue reflects weakness in the western regions at both operating groups due primarily to the global macroeconomic environment, partially offset by strength in Asia. EM revenue of $15.09 billion increased 1.1% over the prior year and organic revenue decreased 1.2% year over year in constant currency. This decrease in organic revenue was primarily related to the Americas region, which (i) experienced weaker demand and (ii) exited the lower margin commercial components business. TS revenue of $10.36 billion decreased 3.8% over the prior year and its organic revenue decreased 8.3% in constant currency over the prior year. This decrease in organic revenue was also attributable to weakness in the western regions.
17
Gross profit margin of 11.7% declined 17 basis points over the prior year. EM gross profit margin declined 52 basis points year over year due to competitive pressures most notably in the EMEA region and a higher mix of lower margin Asia revenue. TS gross profit margin improved 24 basis points year over year primarily driven by the Americas and EMEA offset by a decrease in Asia. These increases were driven primarily by the revenue mix of higher margin products and services.
Consolidated operating income margin was 2.5% as compared with 3.4% in the prior year. Both periods included restructuring, integration and other charges. Excluding these charges from both periods, operating income margin was 3.0% of sales in fiscal 2013 as compared to 3.7% of sales in the prior year. EM operating income margin decreased 90 basis points year over year to 4.1%. The decline in EM operating income margin was primarily due to lower profitability in the western regions due to lower gross profit margins, partially offset by the benefit of cost reduction actions taken. TS operating income margin decreased 27 basis points year over year to 2.7% due primarily to recent acquisitions as the related cost synergies have not yet been attained, in particular in EMEA.
Three-Year Analysis of Sales: By Operating Group and Geography
Years Ended | Percent Change | |||||||||||||||||||||||||
June 29, 2013 | % of Total | June 30, 2012 | % of Total | July 2, 2011 | % of Total | 2013 to 2012 | 2012 to 2011 | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||||
Sales by Operating Group: | ||||||||||||||||||||||||||
EM Americas | $ | 5,263.8 | 20.7 | % | $ | 5,678.7 | 22.1 | % | $ | 5,113.8 | 19.3 | % | (7.3 | )% | 11.0 | % | ||||||||||
EM EMEA | 4,096.0 | 16.1 | 4,203.3 | 16.4 | 4,816.3 | 18.1 | (2.6 | ) | (12.7 | ) | ||||||||||||||||
EM Asia | 5,734.6 | 22.5 | 5,051.1 | 19.6 | 5,136.1 | 19.4 | 13.5 | (1.7 | ) | |||||||||||||||||
Total EM | 15,094.4 | 59.3 | 14,933.1 | 58.1 | 15,066.2 | 56.8 | 1.1 | (0.9 | ) | |||||||||||||||||
TS Americas | 5,452.8 | 21.4 | 5,820.6 | 22.6 | 6,404.7 | 24.1 | (6.3 | ) | (9.1 | ) | ||||||||||||||||
TS EMEA | 3,181.9 | 12.5 | 3,205.6 | 12.5 | 3,577.1 | 13.5 | (0.7 | ) | (10.4 | ) | ||||||||||||||||
TS Asia | 1,729.8 | 6.8 | 1,748.2 | 6.8 | 1,486.4 | 5.6 | (1.1 | ) | 17.6 | |||||||||||||||||
Total TS | 10,364.5 | 40.7 | 10,774.4 | 41.9 | 11,468.2 | 43.2 | (3.8 | ) | (6.0 | ) | ||||||||||||||||
Total Avnet, Inc. | $ | 25,458.9 | $ | 25,707.5 | $ | 26,534.4 | (1.0 | )% | (3.1 | )% | ||||||||||||||||
Sales by Geographic Area: | ||||||||||||||||||||||||||
Americas | $ | 10,716.6 | 42.1 | % | $ | 11,499.3 | 44.8 | % | $ | 11,518.5 | 43.4 | % | (6.8 | )% | (0.2 | )% | ||||||||||
EMEA | 7,277.9 | 28.6 | 7,408.9 | 28.8 | 8,393.4 | 31.6 | (1.8 | ) | (11.7 | ) | ||||||||||||||||
Asia/Pacific | 7,464.4 | 29.3 | 6,799.3 | 26.4 | 6,622.5 | 25.0 | 9.8 | 2.7 | ||||||||||||||||||
$ | 25,458.9 | $ | 25,707.5 | $ | 26,534.4 | |||||||||||||||||||||
18
Sales
Items Impacting Year-over-Year Sales Comparisons
During the past three fiscal years, the Company acquired several businesses impacting both operating groups, as presented in the following table. To facilitate easier and more meaningful year-over-year comparisons, the discussions that follow include sales on an organic basis as well as on a reported basis.
Acquired Business | Group & Region | Approximate Annualized Revenues (1) | Acquisition Date | |||||
(Millions) | ||||||||
Fiscal 2013 | ||||||||
RTI Holdings | EM Asia | $ | 78 | April 2013 | ||||
TSSLink, Inc. | TS Americas | 10 | December 2012 | |||||
Universal Semiconductor, Inc. | EM Americas | 75 | December 2012 | |||||
Genilogix | TS Americas | 23 | November 2012 | |||||
Brightstar Partners, Inc. | TS Americas | 14 | November 2012 | |||||
Magirus AG | TS EMEA | 633 | October 2012 | |||||
Tekdata Interconnections, Limited | EM EMEA | 10 | October 2012 | |||||
Internix, Inc. | EM Asia | 264 | August 2012 | |||||
C.R.G. Electronics, Ltd. | EM EMEA | 24 | August 2012 | |||||
Pepperweed Consulting | TS Americas | 12 | August 2012 | |||||
Mattelli Limited | TS EMEA | 1 | July 2012 | |||||
Altron GmbH & Co KG | EM EMEA | 34 | July 2012 | |||||
Total | $ | 1,178 | ||||||
Fiscal 2012 | ||||||||
Ascendant Technology | TS Americas & TS EMEA | $ | 86 | April 2012 | ||||
Nexicore Services | EM Americas | 85 | April 2012 | |||||
Controlling interest in a non-wholly owned entity | EM Americas | 62 | January 2012 | |||||
Pinnacle Data Systems | EM Americas | 27 | January 2012 | |||||
Canvas Systems | TS Americas & TS EMEA | 118 | January 2012 | |||||
Unidux Electronics Limited (Singapore) | EM Asia | 145 | January 2012 | |||||
Round 2 Tech | EM Americas | 54 | January 2012 | |||||
DE2 SAS | EM EMEA | 11 | November 2011 | |||||
JC Tally Trading Co. & Shanghai FR International Trading | EM Asia | 99 | August 2011 | |||||
Prospect Technology | EM Asia | 142 | August 2011 | |||||
Amosdec SAS | TS EMEA | 83 | July 2011 | |||||
Total | $ | 912 | ||||||
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Acquired Business | Group & Region | Approximate Annualized Revenues (1) | Acquisition Date | |||||
(Millions) | ||||||||
Fiscal 2011 | ||||||||
itX Group Ltd. | TS Asia | $ | 160 | January 2011 | ||||
Center Cell | EM Americas | 5 | November 2010 | |||||
Eurotone | EM Asia | 30 | October 2010 | |||||
Broadband | EM Americas | 8 | October 2010 | |||||
Unidux | EM Asia | 370 | July 2010 | |||||
Tallard Technologies | TS Americas | 250 | July 2010 | |||||
Bell Microproducts Inc. | EM & TS Americas TS EMEA | 3,021 | July 2010 | |||||
Total | $ | 3,844 | ||||||
______________________
(1) | Represents the approximate annual revenue for the acquired businesses’ most recent fiscal year prior to acquisition by Avnet and based upon average foreign currency exchange rates for those periods. |
Sales on an organic basis also include the effects of a divestiture of a small business in TS Asia in December 2012 and the exit of a small business in EM Americas in April 2013 that generated combined annual revenues of approximately $20 million.
Fiscal 2013 Comparison to Fiscal 2012
The table below provides the comparison of reported fiscal 2013 and 2012 sales for the Company and its operating groups to organic sales (as defined earlier in this MD&A) to allow readers to better assess and understand the Company’s revenue performance by operating group.
Sales as Reported | Acquisition/Divested Revenue | Organic Sales | 2013 to 2012 Change | |||||||||||
(Dollars in millions) | ||||||||||||||
EM | $ | 15,094.4 | $ | 148.4 | $ | 15,242.8 | (2.5 | )% | ||||||
TS | 10,364.5 | 153.8 | 10,518.3 | (9.0 | ) | |||||||||
Fiscal 2013 | $ | 25,458.9 | $ | 302.2 | $ | 25,761.1 | (5.3 | ) | ||||||
EM | $ | 14,933.1 | $ | 707.6 | $ | 15,640.7 | ||||||||
TS | 10,774.4 | 789.2 | 11,563.6 | |||||||||||
Fiscal 2012 | $ | 25,707.5 | $ | 1,496.8 | $ | 27,204.3 | ||||||||
Consolidated sales for fiscal 2013 were $25.46 billion, a decrease of 1.0%, or $248.6 million, from the prior year consolidated sales of $25.71 billion. Organic sales (as defined earlier in this MD&A) decreased 5.3% year over year and declined 4.2% excluding the translation impact of changes in foreign currency exchange rates. The organic revenue decline was primarily due to the revenue decline at TS.
EM sales of $15.09 billion for fiscal 2013 increased 1.1% from the prior year sales of $14.93 billion. EM organic revenue in constant currency decreased 1.2% year over year primarily related to the Americas region, which (i) experienced weaker demand and (ii) exited the lower margin commercial components business. On a regional basis, the Americas organic revenue decreased 10.0% year over year primarily due to the decision to exit the lower margin commercial components business. For EMEA, despite the ongoing recessionary trends in the region organic revenue was relatively flat year over year in constant currency. Asia organic revenue increased 6.5% year over year, which was primarily due to higher revenue in the lower gross margin fulfillment business. The higher growth rate in Asia resulted in a regional shift in the mix of sales between the lower-margin Asia region and the higher-margin western regions, which negatively impacted both EM's consolidated gross profit and operating income margins.
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TS sales of $10.36 billion for fiscal 2013 decreased 3.8% from the prior year sales of $10.77 billion. Organic revenue declined 8.3% year over year in constant dollars primarily due to weaker sales in the western regions. In the Americas region, year-over-year organic sales decreased 8.5%, and sales in EMEA decreased 11.7% in constant currency. On a product level, declines in servers and hardware were partially offset by growth in storage, services, and software.
Fiscal 2012 Comparison to Fiscal 2011
The table below provides the comparison of reported fiscal 2012 and 2011 sales for the Company and its operating groups to organic sales (as defined previously) to allow readers to better assess and understand the Company’s revenue performance by operating group.
Sales as Reported | Acquisition Sales | Organic Sales | 2012 to 2011 Change | |||||||||||
(Dollars in millions) | ||||||||||||||
EM | $ | 14,933.1 | $ | 211.2 | $ | 15,144.3 | (6.3 | )% | ||||||
TS | 10,774.4 | 137.8 | 10,912.2 | (1.7 | ) | |||||||||
Fiscal 2012 | $ | 25,707.5 | $ | 349.0 | $ | 26,056.5 | (4.4 | ) | ||||||
EM | $ | 15,066.2 | $ | 1,092.3 | $ | 16,158.5 | ||||||||
TS | 11,468.2 | (365.4 | ) | 11,102.8 | ||||||||||
Fiscal 2011 | $ | 26,534.4 | $ | 726.9 | $ | 27,261.3 | ||||||||
Consolidated sales for fiscal 2012 were $25.71 billion, a decrease of 3.1%, or $826.9 million, from the prior year consolidated sales of $26.53 billion. Organic sales (as defined earlier in this MD&A) decreased 4.4%, which was primarily due to a double-digit decline in the EMEA region in both operating groups.
EM sales of $14.93 billion for fiscal 2012 decreased 0.9% from the prior year sales of $15.07 billion. EM organic revenue in constant currency decreased 6.0% year over year due to the combination of exceptionally high growth in fiscal 2011 driven by the V-shaped recovery in electronic components, which led to negative organic growth in EM for fiscal 2012. On a regional basis, EMEA experienced double-digit, year-over-year revenue declines for both organic and reported revenue, as a result of weaker demand amid concerns surrounding economic conditions in Europe. Asia organic revenue declined 7.5 %, primarily due to slowing growth in China, and sales in the Americas were flat as compared with fiscal 2011.
TS sales of $10.77 billion for fiscal 2012 decreased 6.1% from the prior year sales of $11.47 billion. The year-over-year revenue decrease was due primarily to the Americas and EMEA regions, which were down 9.1% and 10.4%, respectively, partially offset by growth of 17.6% in Asia. Organic revenue decreased 1.7% year over year primarily due to EMEA, which decreased 12.7% and 11.4% in constant currency. The double-digit decline in EMEA was due to weaker demand in Europe due primarily to the macroeconomic environment previously mentioned. The organic decline in EMEA was mostly offset by an increase of 11.5% in Asia and 1.7% in the Americas. On a product level, software and services experienced strong double-digit growth year over year and storage, processors and other hardware also grew year over year.
Gross Profit and Gross Profit Margins
Consolidated gross profit in fiscal 2013 was $2.98 billion, a decrease of $70.8 million, or 2.3%, from the prior year and a decrease of 7.0% on an adjusted basis in constant currency. Gross profit margin of 11.7% decreased 17 basis points over the prior year. EM gross profit margin declined 52 basis points year over year primarily related to declines in gross margins in the EMEA region and a higher mix of revenues from the lower gross profit margin Asia region. The decline in EMEA gross margin was primarily due to the effects of market pressures associated with relatively short product lead times. With respect to regional mix, the Asia region contributed 38% of EM sales in the current year from 34% in the prior year, attributable to higher growth rates in Asia, the effects of the acquisition of Internix, Inc. in Japan, and lower growth rates in the western regions.TS gross profit margin improved 24 basis points year over year, primarily driven by the Americas and EMEA offset by a decrease in Asia. These increases were driven primarily by the revenue mix of higher margin products and services.
Consolidated gross profit in fiscal 2012 was $3.05 billion, a decrease of $57.2 million, or 1.8%, from the prior year and decreased 4.0% on an adjusted basis in constant currency. Gross profit margin of 11.9% improved 16 basis points over the prior year. EM gross profit margin was down 38 basis points year over year, with all three regions experiencing declines. The Americas region was impacted by the transfer of the lower gross margin Latin America commercial components business from TS Americas to EM Americas at the beginning of fiscal 2012. In addition, the regional mix of business was slightly more skewed to the lower
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margin regions in the current fiscal year as the higher gross margin EMEA region represented 28% of the overall EM revenue mix as compared with 32% in the prior year. TS gross profit margin improved 73 basis points year over year. The year-over-year improvement was driven by the western regions, particularly EMEA. The Americas region's gross profit margin benefited from the transfer of the Latin America business to EM as mentioned previously.
Selling, General and Administrative Expenses
Selling, general and administrative expenses (“SG&A expenses”) were $2.20 billion in fiscal 2013, an increase of $111.5 million, or 5.3%, from the prior year. This increase consisted of (i) an increase of approximately $184.4 million related to expenses from businesses acquired and (ii) the effects of inflation and other factors, which increased the Company's SG&A expenses by an estimated $61.0 million, partially offset by (iii) a decrease of approximately $100.0 million related to recent cost reduction actions, and (iv) a decrease of approximately $33.9 million related to the translation impact of changes in foreign currency exchange rates. Metrics that management monitors with respect to its operating expenses are SG&A expenses as a percentage of sales and as a percentage of gross profit. In fiscal 2013, SG&A expenses as a percentage of sales were 8.7% and were 74.0% as a percentage of gross profit as compared with 8.1% and 68.6%, respectively, in fiscal 2012. SG&A expenses as a percentage of gross profit at EM increased 541 basis points year over year, also due to the effects of recent acquisitions as the related cost savings have not yet been fully attained and due to declines in total gross profit dollars relative to operating expenses. SG&A expenses as a percentage of gross profit at TS increased 360 basis points year over year due primarily to the effects of the decrease in revenues as previously described and, to a lesser extent, the effects of recent acquisitions as certain cost synergies have not yet been attained, in particular in EMEA, and which are not expected to be fully achieved for several quarters while the integration work is in process.
SG&A expenses were $2.09 billion in fiscal 2012, essentially flat from the prior year, decreasing $7.8 million. The decrease in SG&A expenses was primarily a result of (i) approximately $51 million related to a decrease in expenses for the existing business due primarily to cost reduction actions taken and a decrease in variable expenses related to the revenue decline; (ii) approximately $6 million related to a decrease due to the translation impact of changes in foreign currency exchange rates, partially offset by (iii) an increase of approximately $49.0 million related to expenses from businesses acquired. In fiscal 2012, SG&A expenses as a percentage of sales were 8.1% and were 68.6% as a percentage of gross profit as compared with 7.9% and 67.6%, respectively, in fiscal 2011.
Restructuring, Integration and Other Charges
Fiscal 2013
During fiscal 2013, the Company continued to take certain actions to reduce costs in both operating groups in response to market conditions and incurred acquisition and integration costs associated with acquired businesses during the fiscal year. As a result, the Company recorded restructuring, integration and other charges of $149.5 million. Restructuring charges of $120.0 million consisted of $73.3 million for severance, $34.4 million for facility exit costs and fixed asset write-downs, and $12.3 million for other restructuring charges, including a $6.6 million loss related to the write-down of the net assets and goodwill related to the exit of a non-integrated business in the EM Americas region. Integration costs were $35.7 million, of which $8.8 million related to the exit of two multi-employer pension plans associated with acquired entities in Japan. Acquisition related charges and adjustments were a credit of $3.2 million, consisting primarily of the reversal of an earn-out liability of $11.2 million for which payment is no longer expected to be incurred. The Company recorded a credit of $3.1 million to adjust reserves related to prior year restructuring activity that were no longer required. The tax-effected impact of restructuring, integration, and other charges was $116.4 million and $0.83 per share on a diluted basis.
Severance charges recorded in fiscal 2013 related to the reduction of over 1,600 employees in sales and business support functions in connection with the cost reduction actions taken in all three regions in both operating groups with employee reductions of approximately 1,100 in EM, 400 in TS and 150 in business support functions. Facility exit costs for vacated facilities related to 32 facilities in the Americas, 26 in EMEA and 11 in the Asia region, and consisted of reserves for remaining lease liabilities for exited facilities and the write-down of the related fixed assets.
Integration costs incurred were related to the integration of acquired businesses and incremental costs incurred as part of the consolidation and closure of certain office and warehouse locations. Integration costs included IT consulting costs for system integration assistance, facility moving costs, legal fees, travel, meeting, marketing and communication costs that were incrementally incurred as a result of the integration activity. Also, included in integration costs are incremental salary costs associated with the consolidation and closure activities, as well as costs associated with acquisition activity, primarily related to the acquired businesses' personnel who were retained by Avnet following the close of the acquisitions solely to assist in the integration of the acquired businesses' IT systems and administrative and logistics operations into those of Avnet. These identified personnel have no other meaningful day-to-day operational responsibilities outside of the integration effort. Acquisition transaction costs consisted
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primarily of professional fees for due diligence work and other legal costs associated with the transaction, along with the gain from the reversal earn-out liability previously described.
Fiscal 2012
During fiscal 2012, the Company took certain actions to reduce costs in both operating groups in response to market conditions and incurred acquisition and integration costs associated with acquired businesses during the fiscal year. As a result, the Company recorded restructuring, integration and other charges of $73.6 million. Restructuring charges of $50.3 million consisted of $33.2 million for severance, $12.0 million for facility exit costs and fixed asset write-downs, and $5.1 million for other restructuring charges, primarily other lease obligations that have no ongoing benefit to the Company. Integration costs and acquisition transaction costs were $9.4 million and $10.6 million, respectively. The Company recorded a credit of $3.3 million to adjust reserves related to prior year restructuring activity that were no longer required. In addition, the Company recorded $6.7 million for (i) a legal claim associated with an acquired business and a potential royalty claim related to periods prior to acquisition by Avnet and (ii) a legal claim associated with an indemnification of a prior divested business. The tax-effected impact of restructuring, integration and other charges was $53.0 million and $0.35 per share on a diluted basis
Severance charges recorded in fiscal 2012 related to the reduction of over 800 employees in sales, administrative and finance functions in connection with the cost reduction actions taken in all three regions in both operating groups with employee reductions of approximately 480 in EM and 320 in TS. Facility exit costs for vacated facilities related to 12 facilities in the Americas, 5 in EMEA and 13 in the Asia region and consisted of reserves for remaining lease liabilities and the write-down of leasehold improvements and other fixed assets.
Fiscal 2011
During fiscal 2011, the Company recognized restructuring, integration and other charges of $77.2 million associated primarily with the integration of the acquired Bell business. Restructuring costs included $28.6 million for severance and $17.3 million for facility exit costs for lease liabilities, fixed asset write-downs and other related charges associated with vacated facilities and $1.8 million for other charges. Integration costs were $25.1 million and acquisition transactions costs were $15.6 million. In addition, the Company recorded a reversal of $11.3 million related to (i) the reversal of restructuring reserves established in prior years that were deemed no longer required, (ii) acquisition adjustments for which the purchase allocation period had closed and (iii) exit-related reserves originally established through goodwill in prior years that were deemed no longer required and were credited to the consolidated statement of operations rather than to goodwill because the associated goodwill was impaired in fiscal 2009. The tax-effected impact of restructuring, integration, and other charges was $56.2 million and $0.36 per share on a diluted basis
Severance charges recorded in fiscal 2011 related to personnel reductions of over 550 employees in administrative, finance and sales functions primarily in connection with the integration of the acquired Bell business into the existing EM Americas, TS Americas and TS EMEA regions and, to a lesser extent, other cost reduction actions in other regions. Facility exit costs consisted of lease liabilities, fixed asset write-downs and other related charges associated with 50 vacated facilities: 23 in the Americas, 25 in EMEA and two in the Asia region. Total amounts utilized during fiscal 2012 consisted of $12.1 million in cash payments and $3.2 million related to adjustments to reserves and foreign currency translation.
Operating Income
During fiscal 2013, the Company generated operating income of $626.0 million, representing a 29.2% decline as compared with prior year operating income of $884.2 million. Consolidated operating income margin was 2.5% as compared with 3.4% in the prior year. Both periods included restructuring, integration and other charges as described in Restructuring, Integration and Other Charges, above. Excluding these charges from both periods, operating income was $775.5 million, or 3.0% of sales, in fiscal 2013 as compared with $957.8 million, or 3.7% of sales, in the prior year. EM operating income of $624.0 million decreased 17.0% year over year and operating income margin decreased 90 basis points year over year to 4.1%. The decline in EM operating income margin was primarily due to lower gross profit margin as previously mentioned, resulting in lower profitability in the western regions, offset partially by the benefits of cost reduction actions taken. TS operating income of $278.4 million decreased 12.8% year over year and operating income margin decreased 27 basis points to 2.7% due primarily to the effects of the decline in revenue, as previously described and, to a lesser extent, the effects of recent acquisitions as certain cost synergies have not yet been attained, in particular in EMEA, and which are not expected to be fully achieved for several quarters while the integration work is in process. Corporate operating expenses were $126.9 million in fiscal 2013 as compared with $112.9 million in fiscal 2012.
During fiscal 2012, the Company generated operating income of $884.2 million, down 4.9%, as compared with $930.0 million in the prior year. Consolidated operating income margin was 3.4% as compared with 3.5% in the prior year. Both periods
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included restructuring, integration and other charges as described in Restructuring, Integration and Other Charges above. Excluding these charges from both periods, operating income was $957.8 million, or 3.7% of sales, in fiscal 2012 as compared with $1.01 billion, or 3.8% of sales, in the prior year. EM operating income of $751.4 million was down 9.7% year over year. While EM's operating income margin remained within management's target range of 5.0% to 5.5%, it declined 50 basis points year over year to 5.0%. This decline in EM operating income margin was primarily due to the negative operating leverage, particularly in EMEA related to the year-over-year decline in sales in fiscal 2012 due to macroeconomic conditions in the region as compared with the positive operating leverage during fiscal 2011 due to the particularly strong sales growth in fiscal 2011. In addition, lower operating income margin in EM Asia, due to economic slowing in China, also contributed to EM's overall decline in operating income margin. The decline at EM was somewhat mitigated by the benefits from cost reduction actions taken in response to business conditions. TS operating income of $319.3 million increased 11.4% year over year and operating income margin increased 46 basis points to 3.0% primarily due to improvement in the western regions, which was driven by the combination of higher gross profit margins and the benefits from restructuring initiatives. Corporate operating expenses were $112.9 million in fiscal 2012 as compared with $112.0 million in fiscal 2011.
Interest Expense and Other Income (Expense), net
Interest expense for fiscal 2013 was $107.7 million, an increase of $16.8 million, or 18.5%, compared with the prior year. The increase in interest expense was primarily due to higher average debt balances and incremental interest expense related to the 4.875% Notes issued during the second quarter of fiscal 2013, the proceeds of which were used to repay the short-term debt, which had lower interest rates. See Financing Transactions for further discussion of the Company's outstanding debt.
Interest expense for fiscal 2012 was $90.9 million, down $1.6 million, or 1.7%, compared with the prior year. The year-over-year decrease in interest expense was due to (i) the pay off of $104.4 million of 3.75% convertible debt in March 2011 and (ii) lower interest expense incurred under foreign bank credit facilities as compared with the prior year.
During fiscal 2013, the Company recognized $0.1 million of other expense as compared with $5.4 million in the prior year. The year-over-year increase in other income is attributable to a reduction in foreign currency exchange losses in the current year. Included in other income for fiscal 2013 is a gain on sale of marketable securities partially offset by a loss due to the devaluation of the Venezuelan currency.
During fiscal 2012, the Company recognized $5.4 million of other expense as compared with other income of $10.7 million in the prior year. The year-over-year increase in other expense was due primarily to foreign exchange losses in fiscal 2012 compared with foreign currency exchange gains in the prior year.
Gain on Bargain Purchase and Other
During fiscal 2013, the Company recognized a gain on bargain purchase and other of $31.0 million pre-tax, which consisted of (i) a gain on bargain purchase related to the acquisition of Internix of $32.7 million pre- and after tax and $0.23 per share on a diluted basis, which was partially offset by (ii) a loss of $1.7 million pre-tax and after tax and $0.01 per share on a diluted basis as a result of the divestiture of a small business in the TS Asia region.
During fiscal 2012, the Company recognized a gain on bargain purchase of $4.3 million pre- and after tax and $0.03 per share on a diluted basis. In January 2012, the Company acquired Unidux Electronics Limited, a Singapore publicly traded company, through a tender offer. After assessing the assets acquired and liabilities assumed, the consideration paid was below the fair value of the acquired net assets and, as a result, the Company recognized the gain. In addition, the Company recognized other charges of $1.4 million pre-tax, $0.9 million after tax and $0.01 per share on a diluted basis related to the write-down of an investment in a small technology company and the write-off of certain deferred financing costs associated with the early termination of a credit facility (see Financing Transactions for further discussion).
During fiscal 2011, the Company acquired Unidux, a Japanese publicly traded company, through a tender offer. After reassessing all assets acquired and liabilities assumed, the consideration paid was below the fair value of the acquired net assets and, as a result, the Company recognized a gain on bargain purchase of $31.0 million pre- and after tax and $0.20 per share on a diluted basis. In addition, the Company recognized other charges of $2.0 million pre-tax, $1.4 million after tax and $0.01 per share on a diluted basis primarily related to an impairment of buildings in EMEA and recognized a loss of $6.3 million pre-tax, $3.9 million after tax and $0.02 per share on a diluted basis related to the write-down of prior investments in smaller technology start-up companies.
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Income Tax Provision
Avnet’s effective tax rate on income before income taxes was 18.1% in fiscal 2013 as compared with an effective tax rate of 28.3% in fiscal 2012. Included in the fiscal 2013 effective tax rate is a net tax benefit of $50.4 million, which is comprised of (i) a tax benefit of $41.6 million for the reversal of previously established valuation allowances against deferred tax assets that were now determined to be realizable, a portion of which related to a legal entity in EMEA (discussed further below), (ii) net favorable audit settlements resulting in a benefit of $33.2 million, partially offset by (iii) a tax provision of $24.4 million primarily related to the establishment of a valuation allowance against deferred tax assets that were determined to be unrealizable during fiscal 2013. The fiscal 2013 effective tax rate is lower than the fiscal 2012 effective tax rate primarily due to a favorable impact from audit settlements and, to a lesser extent, the amount of the valuation allowance released in fiscal 2013 (as discussed further below) as compared with the amount released in fiscal 2012 due to the reduced level of income and mix of income in the current year. In fiscal 2012, withholding tax related to legal entity reorganization resulted in an increase to the rate that does not exist in the current year.
Prior to fiscal 2011, the Company established a full valuation allowance against significant deferred tax assets related to a legal entity in EMEA due to, among several other factors, a history of losses in that entity. Since fiscal 2011, the Company determined a portion of the valuation allowance related to this entity was no longer required due to the expected continuation of improved earnings in the foreseeable future and, as a result, the Company's effective tax rate was positively impacted (decreased) upon the release of the valuation allowance. In fiscal 2013 and 2012, the valuation allowance released associated with this EMEA legal entity was $27.1 million and $22.1 million, respectively, net of the U.S. tax expense associated with the release. The Company will continue to evaluate the need for a valuation allowance against these tax assets and will adjust the valuation allowance as deemed appropriate which, when adjusted, will result in an impact to the effective tax rate. Factors that are considered in such an evaluation include historic levels of income, expectations and risk associated with estimates of future taxable income and ongoing prudent and feasible tax planning strategies. Excluding the benefit in both fiscal years related to the release of the tax valuation allowance associated with the EMEA legal entity, the effective tax rate for fiscal 2013 would have been 23.0% as compared with 31.1% for fiscal 2012.
Avnet’s effective tax rate on income before income taxes was 28.3% in fiscal 2012; compared with an effective tax rate of 23.2% in fiscal 2011. The fiscal 2012 effective tax rate is higher than the fiscal 2011 effective tax rate primarily due to a lower amount of valuation allowance released in fiscal 2012 as compared with fiscal 2011, and, to a lesser extent, a more favorable impact from audit settlements and changes to existing tax positions in fiscal 2012 as compared with fiscal 2011. These favorable impacts were partially offset by withholding tax in fiscal 2012.
Avnet's effective tax rate is primarily a function of the tax rates in the numerous jurisdictions in which it does business applied to the mix of pre-tax book income. The effective tax rate may vary year over year as a result of changes in tax requirements in these jurisdictions, management's evaluation of its ability to generate sufficient taxable income to offset net operating loss carry-forwards and the establishment of reserves for unfavorable outcomes of tax positions taken on certain matters that are common to multinational enterprises and the actual outcome of those matters.
Net Income
As a result of the factors described in the preceding sections of this MD&A, the Company’s net income in fiscal 2013 was $450.1 million, or $3.21 per share on a diluted basis, compared with net income of $567.0 million, or $3.79 per share on a diluted basis, in fiscal 2012 and $669.1 million, or $4.34 per share on a diluted basis, in fiscal 2011.
Fiscal 2013, 2012 and 2011 results were impacted by certain items as presented in the following tables:
Year Ended June 29, 2013 | |||||||||||||||
Operating Income (Loss) | Pre-tax Income (Loss) | Net Income (Loss) | Diluted EPS | ||||||||||||
(Thousands, except per share data) | |||||||||||||||
Restructuring, integration and other charges | $ | (149,501 | ) | $ | (149,501 | ) | $ | (116,382 | ) | $ | (0.83 | ) | |||
Gain on bargain purchase and other | — | 31,011 | 30,974 | 0.22 | |||||||||||
Net tax benefit | — | — | 50,376 | 0.36 | |||||||||||
Total | $ | (149,501 | ) | $ | (118,490 | ) | $ | (35,032 | ) | $ | (0.25 | ) | |||
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Year Ended June 30, 2012 | |||||||||||||||
Operating Income (Loss) | Pre-tax Income (Loss) | Net Income (Loss) | Diluted EPS | ||||||||||||
(Thousands, except per share data) | |||||||||||||||
Restructuring, integration and other charges | $ | (73,585 | ) | $ | (73,585 | ) | $ | (52,963 | ) | $ | (0.35 | ) | |||
Gain on bargain purchase and other | — | 2,918 | 3,463 | 0.02 | |||||||||||
Net tax benefit | — | — | 8,616 | 0.06 | |||||||||||
Total | $ | (73,585 | ) | $ | (70,667 | ) | $ | (40,884 | ) | $ | (0.27 | ) | |||
Year Ended July 2, 2011 | |||||||||||||||
Operating Income (Loss) | Pre-tax Income (Loss) | Net Income (Loss) | Diluted EPS | ||||||||||||
(Thousands, except per share data) | |||||||||||||||
Restructuring, integration and other charges | $ | (77,176 | ) | $ | (77,176 | ) | $ | (56,169 | ) | $ | (0.36 | ) | |||
Gain on sale of assets | — | 22,715 | 25,720 | 0.17 | |||||||||||
Release of tax valuation allowance, net of tax reserves adjustments | — | — | 32,901 | 0.21 | |||||||||||
Total | $ | (77,176 | ) | $ | (54,461 | ) | $ | 2,452 | $ | 0.02 | |||||
Liquidity and Capital Resources
Cash Flows
Cash Flows from Operating Activities
The Company generated $696.2 million of cash from operating activities in fiscal 2013 as compared with $528.7 million in fiscal 2012. These results are comprised of: (i) cash flow generated from net income excluding non-cash and other reconciling items, which includes the add-back to net income of depreciation and amortization, deferred income taxes, stock-based compensation and other non-cash items (primarily the provision for doubtful accounts and periodic pension costs) and (ii) cash flow used for working capital, excluding cash and cash equivalents. Cash generated by working capital changes was $47.5 million during fiscal 2013, resulting from a decrease in inventory of $225.7 million, partially offset by a decrease in accounts payable and accrued expenses and other of $78.8 million and $5.2 million, respectively, and an increase in accounts receivable of $94.2 million. Net days outstanding, in particular, receivable days, has not changed significantly as there has not been any significant change in terms provided to customers nor are customers changing their payment patterns.
During fiscal 2012, the Company generated $528.7 million of cash from operating activities as compared with $278.1 million in fiscal 2011. Cash generated by working capital in fiscal 2012 resulted from a decrease in accounts receivable and inventory of $72.3 million and $133.2 million, respectively, offset by a decrease in accounts payable of $319.1 million and in accrued expenses and other of $136.9 million. Cash used for working capital during fiscal 2011 consisted of growth in accounts receivable and inventory of $421.5 million and $321.9 million, respectively, partially offset by an increase in accounts payable of $165.2 million.
Cash Flows from Financing Activities
During fiscal 2013, the Company repaid $490.9 million under the accounts receivable securitization program and its revolving credit facility, a portion of which was funded by the issuance of $350 million of 4.875% Notes due December 1, 2022. In addition, during fiscal 2013, the Company used $207.2 million of cash to repurchase common stock under the $750.0 million share repurchase program authorized by the Board of Directors in August 2012 (see Item 5. Market for Registrants' Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities in this Form 10-K).
During fiscal 2012, the Company received proceeds of $595.8 million, primarily from borrowings under the accounts receivable securitization program and bank credit facilities. In addition, during fiscal 2012, the Company used $318.3 million of cash to repurchase common stock under the Company's share repurchase program.
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During fiscal 2011, the Company received proceeds of $160.0 million from borrowings under the accounts receivable securitization program and repaid $109.6 million for the 3.75% Notes acquired in the Bell acquisition which were tendered during fiscal 2011. The Company also received proceeds of $8.9 million, net of repayments, related to its revolving credit facility and other debt.
Other financing activities, net, during fiscal 2013, 2012 and 2011 were primarily a result of cash received for the exercise of stock options and the associated excess tax benefit.
Cash Flows from Investing Activities
During fiscal 2013, the Company used $262.3 million of cash for acquisitions, net of cash acquired, and $97.4 million for capital expenditures primarily related to system development costs and computer hardware and software purchases. Also during fiscal 2013, the Company received $3.6 million, net of cash divested, for an earn-out payment associated with a divestiture completed in a prior year and a small divestiture in TS Asia.
During fiscal 2012, the Company used $313.2 million of cash for acquisitions, net of cash acquired, and $128.7 million for capital expenditures primarily related to system development costs and computer hardware and software purchases.
During fiscal 2011, the Company used $691.0 million of cash for acquisitions, net of cash acquired, and $148.7 million for capital expenditures primarily related to system development costs and computer hardware and software expenditures. Also during fiscal 2011, the Company received $19.1 million of proceeds associated with a divestiture and $10.6 million of proceeds from the sale of fixed assets.
Capital Structure
The Company uses a variety of financing arrangements, both short-term and long-term, to fund its operations in addition to funds generated from cash flow from operations. The Company also uses diversified sources of funding so that it does not become overly dependent on one source and to achieve lower cost of funding through these different alternatives. These financing arrangements include public bonds, short-term and long-term bank loans and an accounts receivable securitization program. For a detailed description of the Company’s external financing arrangements outstanding at June 29, 2013, refer to Note 7 to the consolidated financial statements appearing in Item 15 of this Report.
The following table summarizes the Company’s capital structure as of the end of fiscal 2013 with a comparison with the end of fiscal 2012:
June 29, 2013 | % of Total Capitalization | June 30, 2012 | % of Total Capitalization | ||||||||
(Dollars in thousands) | |||||||||||
Short-term debt | $ | 838,190 | 13.2% | $ | 872,404 | 14.4% | |||||
Long-term debt | 1,206,993 | 19.1 | 1,271,985 | 21.0 | |||||||
Total debt | 2,045,183 | 32.3 | 2,144,389 | 35.4 | |||||||
Shareholders’ equity | 4,289,125 | 67.7 | 3,905,732 | 64.6 | |||||||
Total capitalization | $ | 6,334,308 | 100.0 | $ | 6,050,121 | 100.0 | |||||
Financing Transactions
The Company has a five-year $1.0 billion senior unsecured revolving credit facility (the "2012 Credit Facility") with a syndicate of banks, which expires in November 2016. In connection with the 2012 Credit Facility, the Company terminated its existing unsecured $500.0 million credit facility (the "2008 Credit Facility"), which was to expire in September 2012. Under the 2012 Credit Facility, the Company may elect from various interest rate options, currencies and maturities. As of the end of fiscal 2013, there were $6.7 million in borrowings outstanding under the 2012 Credit Facility included in “long-term debt” in the consolidated financial statements. In addition, there were $2.3 million in letters of credit issued under the 2012 Credit Facility, which represents a utilization of the 2012 Credit Facility capacity but is not recorded in the consolidated balance sheet as the letters of credit are not debt. As of June 30, 2012, there were $110.1 million in borrowings outstanding included in “long-term debt” in the consolidated financial statements and $17.2 million in letters of credit issued.
In August 2012, the Company amended its accounts receivable securitization program (the "Securitization Program" or “Program”) with a group of financial institutions to allow the Company to sell, on a revolving basis, an undivided interest of up to $800.0 million ($750.0 million prior to the amendment) in eligible receivables while retaining a subordinated interest in a portion
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of the receivables. The Program does not qualify for sale treatment and, as a result, any borrowings under the Program are recorded as debt on the consolidated balance sheet. The Program contains certain covenants, all of which the Company was in compliance with as of June 29, 2013. The Program has a one-year term that expires at the end of August 2013, which is expected to be renewed for another year on comparable terms. There were $360.0 million in borrowings outstanding under the Program at June 29, 2013 and $670.0 million outstanding at June 30, 2012.
Notes outstanding at June 29, 2013 consisted of:
• | $300.0 million of 5.875% Notes due March 15, 2014 (reflected as short-term debt) |
• | $250.0 million of 6.00% Notes due September 1, 2015 |
• | $300.0 million of 6.625% Notes due September 15, 2016 |
• | $300.0 million of 5.875% Notes due June 15, 2020 |
• | $350.0 million of 4.875% Notes due December 1, 2022 |
In addition to its primary financing arrangements, the Company has $180.3 million of debt outstanding with foreign financial institutions and several small lines of credit in various locations to fund the short-term working capital, foreign exchange, overdraft and letter of credit needs of its wholly owned subsidiaries in EMEA, Asia and Canada. Avnet generally guarantees its subsidiaries' obligations under these facilities.
Covenants and Conditions
The Securitization Program requires the Company to maintain certain minimum interest coverage and leverage ratios in order to continue utilizing the Program. The Program also contains certain covenants relating to the quality of the receivables sold. If these conditions are not met, the Company may not be able to borrow any additional funds and the financial institutions may consider this an amortization event, as defined in the agreement, which would permit the financial institutions to liquidate the accounts receivables sold to cover any outstanding borrowings. Circumstances that could affect the Company’s ability to meet the required covenants and conditions of the Program include the Company’s ongoing profitability and various other economic, market and industry factors. Management does not believe that the covenants under the Program limit the Company’s ability to pursue its intended business strategy or its future financing needs. The Company was in compliance with all covenants of the Program as of June 29, 2013.
The 2012 Credit Facility contains certain covenants with various limitations on debt incurrence, dividends, investments and capital expenditures and also includes financial covenants requiring the Company to maintain minimum interest coverage and leverage ratios. Management does not believe that the covenants in the 2012 Credit Facility limit the Company’s ability to pursue its intended business strategy or its future financing needs. The Company was in compliance with all covenants of the Credit Facility as of June 29, 2013.
See Liquidity below for further discussion of the Company’s availability under these various facilities.
Liquidity
As of June 29, 2013, the Company had total borrowing capacity of $1.80 billion under the 2012 Credit Facility and the Program. There were $6.7 million in borrowings outstanding and $2.3 million in letters of credit issued under the 2012 Credit Facility and $360.0 million outstanding under the Securitization Program resulting in $1.4 billion of net availability at the end of fiscal 2013. During fiscal 2013, the Company had an average daily balance outstanding under the 2012 Credit Facility of approximately $5.0 million and $570.0 million under the Securitization Program. During fiscal 2012, the Company had an average daily balance outstanding under the 2012 Credit Facility of approximately $115.0 million and $620.0 million under the Securitization Program.
The Company had cash and cash equivalents of $1.01 billion as of June 29, 2013, of which $918.4 million was held outside the U.S. As of June 30, 2012, the Company had cash and cash equivalents of $1.01 billion, of which $874.0 million was held outside of the U.S. Liquidity is subject to many factors, such as normal business operations as well as general economic, financial, competitive, legislative, and regulatory factors that are beyond the Company’s control. Cash balances generated and held in foreign locations are used for ongoing working capital, capital expenditures and to support acquisitions. These balances are currently expected to be permanently reinvested outside the U.S. If these funds were needed in the U.S., the Company would incur significant income taxes to repatriate cash held in foreign locations to the extent they are in excess of outstanding intercompany loans due to Avnet, Inc. from the foreign subsidiaries. In addition, local government regulations may restrict the Company’s ability to move
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funds among various locations under certain circumstances. Management does not believe such restrictions would limit the Company’s ability to pursue its intended business strategy.
During fiscal 2013, the Company utilized $262.3 million of cash, net of cash acquired, for acquisitions. The Company expects to continue to make strategic investments through acquisition activity to the extent the investments strengthen Avnet’s competitive position and meet management’s return on capital thresholds.
In addition to continuing to make investments in acquisitions, the Company may repurchase up to an aggregate of $750.0 million of the Company’s common stock through a share repurchase program approved by the Board of Directors (as amended in August 2012). The Company plans to repurchase stock from time to time at the discretion of management, subject to strategic considerations, market conditions and other factors. The Company may terminate or limit the stock repurchase program at any time without prior notice. The timing and actual number of shares purchased will depend on a variety of factors such as price, corporate and regulatory requirements, and prevailing market conditions. Since the beginning of the repurchase program through the end of fiscal 2013, the Company repurchased 17.9 million shares at an average market price of $29.38 per share for total cost of $525.5 million. Shares repurchased were retired.
During periods of weakening demand in the electronic component and enterprise computer solutions industry, the Company typically generates cash from operating activities. Conversely, the Company is more likely to use operating cash flows for working capital requirements during periods of higher growth. During fiscal 2013, the Company generated $696.2 million in cash from operations as revenue declined 1.0% over the prior year. Management believes that Avnet’s borrowing capacity, its current cash availability and the Company’s expected ability to generate operating cash flows are sufficient to meet its projected financing needs.
The following table highlights the Company’s liquidity and related ratios for the past two fiscal years:
COMPARATIVE ANALYSIS — LIQUIDITY
Years Ended | ||||||||||
June 29, 2013 | June 30, 2012 | Percentage Change | ||||||||
(Dollars in millions) | ||||||||||
Current Assets | $ | 8,356.9 | $ | 8,254.4 | 1.2 | % | ||||
Quick Assets | 5,878.3 | 5,614.2 | 4.7 | |||||||
Current Liabilities | 4,821.4 | 4,798.7 | 0.5 | |||||||
Working Capital(1) | 3,535.4 | 3,455.7 | 2.3 | |||||||
Total Debt | 2,045.2 | 2,144.4 | (4.6 | ) | ||||||
Total Capital (total debt plus total shareholders’ equity) | 6,334.3 | 6,050.1 | 4.7 | |||||||
Quick Ratio | 1.2:1 | 1.2:1 | ||||||||
Working Capital Ratio | 1.7:1 | 1.7:1 | ||||||||
Debt to Total Capital | 32.3 | % | 35.4 | % | ||||||
______________________
(1) | This calculation of working capital is defined as current assets less current liabilities. |
The Company’s quick assets (consisting of cash and cash equivalents and receivables) increased 4.7% from June 30, 2012 to June 29, 2013 primarily due to an increase in receivables as a result of the change in foreign currency exchange spot rates at June 30, 2012 and the year-over-year decline in revenue. These factors, when combined with a decrease in inventory, led to an increase in current assets of 1.2%. Current liabilities increased 0.5% primarily due to an increase in accounts payable and accrued expenses, which was partially offset by a decrease in short-term borrowings. As a result of the factors noted above, total working capital increased by 2.3% during fiscal 2013. Total debt decreased by 4.6%, primarily due to the decrease in borrowings under the 2012 Credit Facility and the Securitization Program, total capital increased 4.7% and the debt to capital ratio decreased to 32.3%.
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Long-Term Contractual Obligations
The Company has the following contractual obligations outstanding as of June 29, 2013 (in millions):
Total | Due in Less Than 1 Year | Due in 1-3 Years | Due in 4-5 Years | Due After 5 Years | |||||||||||||||
Long-term debt, including amounts due within one year(1) | $ | 2,047.8 | $ | 838.2 | $ | 258.8 | $ | 300.4 | $ | 650.4 | |||||||||
Interest expense on long-term notes(2) | $ | 378.5 | $ | 84.0 | $ | 127.3 | $ | 73.5 | $ | 93.7 | |||||||||
Operating leases | $ | 272.2 | $ | 86.1 | $ | 100.1 | $ | 47.6 | $ | 38.4 | |||||||||
______________________
(1) | Excludes discount on long-term notes. |
(2) | Represents interest expense due on long-term notes with fixed interest rates and variable debt assuming the same interest rate as at June 29, 2013. |
At June 29, 2013, the Company had a liability for income tax contingencies of $123.9 million, which is not included in the above table. Cash payments associated with the settlement of these liabilities that are expected to be paid within the next 12 months is $16.3 million. The Company does not currently have any material commitments for capital expenditures.
Critical Accounting Policies
The Company’s consolidated financial statements have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires the Company to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses during the reporting period. These estimates and assumptions are based upon the Company’s continuous evaluation of historical results and anticipated future events. Actual results may differ from these estimates under different assumptions or conditions.
The Securities and Exchange Commission defines critical accounting policies as those that are, in management’s view, most important to the portrayal of the Company’s financial condition and results of operations and that require significant judgments and estimates. Management believes the Company’s most critical accounting policies relate to:
Valuation of Receivables
The Company maintains an allowance for doubtful accounts for estimated losses resulting from customer defaults. Bad debt reserves are recorded based upon historic default averages as well as the Company’s regular assessment of the financial condition of its customers. Therefore, if collection experience or the financial condition of specific customers were to change, management would evaluate whether additional adjustments are required.
Valuation of Inventories
Inventories are recorded at the lower of cost (first in — first out) or estimated market value. The Company’s inventories include high-technology components, embedded systems and computing technologies sold into rapidly changing, cyclical and competitive markets wherein such inventories may be subject to technological obsolescence.
The Company regularly evaluates inventories for excess, obsolescence or other factors that may render inventories less marketable. Write-downs are recorded so that inventories reflect the approximate net realizable value and take into account the Company’s contractual provisions with its suppliers, which may provide certain protections to the Company for product obsolescence and price erosion in the form of rights of return and price protection. Because of the large number of transactions and the complexity of managing the process around price protections and stock rotations, estimates are made regarding adjustments to the carrying amount of inventories. Additionally, assumptions about future demand, market conditions and decisions to discontinue certain product lines can impact the decision to write-down inventories. If assumptions about future demand change or actual market conditions are less favorable than those projected by management, management would evaluate whether additional write-downs of inventories are required. In any case, actual values could be different from those currently estimated.
Accounting for Income Taxes
Management's judgment is required in determining the provision for income taxes, deferred tax assets and liabilities and the valuation allowance recorded against net deferred tax assets. The carrying value of the Company's net operating loss carry-forwards is dependent upon its ability to generate sufficient future taxable income in certain tax jurisdictions. In addition, the Company
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considers historic levels of income, expectations and risk associated with estimates of future taxable income and ongoing prudent and feasible tax planning strategies in assessing a tax valuation allowance. Should the Company determine that it is not able to realize all or part of its deferred tax assets in the future, an additional valuation allowance may be recorded against the deferred tax assets with a corresponding charge to income in the period such determination is made. Similarly, should the Company determine that it is able to realize all or part of its deferred tax assets that have been reserved for, the Company may release a valuation allowance with a corresponding benefit to income in the period such determination is made.
The Company establishes reserves for potentially unfavorable outcomes of positions taken on certain tax matters. These reserves are based on management's assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities. There may be differences between the anticipated and actual outcomes of these matters that may result in reversals of reserves or additional tax liabilities in excess of the reserved amounts. To the extent such adjustments are warranted, the Company's effective tax rate may potentially fluctuate as a result. In accordance with the Company's accounting policy, accrued interest and penalties, if any, related to unrecognized tax benefits are recorded as a component of income tax expense.
In determining the Company's effective tax rate, management considers current tax regulations in the numerous jurisdictions in which it operates, and exercises judgment for interpretation and application. Changes to such tax regulations or disagreements with the Company's interpretation or application by tax authorities in any of the Company's major jurisdictions may have a significant impact on the Company's provision for income taxes.
Restructuring, Integration and Impairment Charges
The Company has been subject to the financial impact of integrating acquired businesses and charges related to business reorganizations. In connection with such events, management is required to make estimates about the financial impact of such matters that are inherently uncertain. Accrued liabilities and reserves are established to cover the cost of severance, facility consolidation and closure, lease termination fees, inventory adjustments based upon acquisition-related termination of supplier agreements and/or the re-evaluation of the acquired working capital assets (inventory and accounts receivable), and write-down of other acquired assets including goodwill. Actual amounts incurred could be different from those estimated.
Additionally, in assessing goodwill for impairment, the Company is required to make significant assumptions about the future cash flows and overall performance of its reporting units. The Company is also required to make judgments regarding the evaluation of changes in events or circumstances that would more likely than not reduce the fair value of any of its reporting units below its carrying value, the results of which would determine whether an interim impairment test must be performed. Should these assumptions or judgments change in the future based upon market conditions or should the structure of the Company’s reporting units change based upon changes in business strategy, the Company may be required to perform an interim impairment test which may result in a goodwill impairment charge.
During fiscal 2013, 2012 and 2011, the Company performed its annual goodwill impairment test and determined there was no goodwill impairment in any of its reporting units. The Company does not believe there were any reporting units that were at risk of failing "step 1" of the goodwill impairment test. However, in fiscal 2013 there was one reporting unit for which the estimated fair value was not substantially in excess of the carrying value of the reporting unit. The percentage by which the estimated fair value exceeded carrying value was approximately 23% for TS Asia. As of June 29, 2013, TS Asia had approximately $54 million of allocated goodwill.
In order to estimate the fair value of its reporting units, the Company uses a combination of an income approach, specifically a discounted cash flow methodology, and a market approach. The discounted cash flow methodology includes assumptions for, among others, forecasted revenues, gross profit margins, operating profit margins, working capital cash flow, perpetual growth rates and long-term discount rates, all of which require significant judgments and estimates by management which are inherently uncertain. These assumptions, judgments and estimates may change in the future based upon market conditions or other events and could result in a goodwill impairment charge.
Contingencies and Litigation
From time to time, the Company may become a party to, or otherwise involved in, various lawsuits, claims, investigations and other legal proceedings in the ordinary course of conducting its business. While litigation is subject to inherent uncertainties, management does not anticipate that any current matters will have a material adverse impact on the Company’s financial condition, liquidity or results of operations.
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Revenue Recognition
The Company does not consider revenue recognition to be a critical accounting policy due to the nature of its business because revenues are generally recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the sales price is fixed or determinable and collectability is reasonably assured. Generally, these criteria are met upon the actual shipment of product to the customer. Accordingly, other than for estimates related to possible returns of products from customers, discounts or rebates, the recording of revenue does not require significant judgments or estimates.
Provisions for returns are estimated based on historical sales returns, credit memo analysis and other known factors. Provisions are made for discounts and rebates, which are primarily volume-based, and are generally based on historical trends and anticipated customer buying patterns. Finally, revenues from maintenance contracts, which are deferred and recognized in income over the life of the agreement, are not material to the consolidated results of operations of the Company.
The Company evaluates the criteria outlined in ASC Topic 605-45, Principal Agent Considerations, in determining whether it is appropriate to record the gross amount of revenue and related costs or the net amount (gross fees less related cost of sales or services) earned when acting as an agent for certain customers and suppliers. Generally, transactions that qualify for net accounting treatment consist of the sale of supplier service contracts for which the Company has no continuing involvement or the performance of logistics services to deliver product for which the Company is not the primary obligor.
Recently Issued Accounting Pronouncements
See Note 1 in the Notes to Consolidated Financial Statements contained in Item 15 of this Report for the discussion of recently issued accounting pronouncements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company seeks to reduce earnings and cash flow volatility associated with changes in interest rates and foreign currency exchange rates by entering into financial arrangements, from time to time, which are intended to provide a hedge against all or a portion of the risks associated with such volatility. The Company continues to have exposure to such risks to the extent they are not hedged.
The following table sets forth the scheduled maturities of the Company’s debt outstanding at June 29, 2013 (dollars in millions):
Fiscal Year | |||||||||||||||||||||||||||
2014 | 2015 | 2016 | 2017 | 2018 | Thereafter | Total | |||||||||||||||||||||
Liabilities: | |||||||||||||||||||||||||||
Fixed rate debt(1) | $ | 361.2 | $ | 0.4 | $ | 250.4 | $ | 300.2 | $ | — | $ | 650.4 | $ | 1,562.6 | |||||||||||||
Floating rate debt | $ | 477.0 | $ | 0.8 | $ | 7.2 | $ | 0.2 | $ | — | $ | — | $ | 485.2 | |||||||||||||
______________________
(1) | Excludes discounts on long-term notes. |
The following table sets forth the carrying value and fair value of the Company’s debt at June 29, 2013 (dollars in millions):
Carrying Value at June 29, 2013 | Fair Value at June 29, 2013 | Carrying Value at June 30, 2012 | Fair Value at June 30, 2012 | ||||||||||||
Liabilities: | |||||||||||||||
Fixed rate debt(1) | $ | 1,562.6 | $ | 1,645.1 | $ | 1,152.8 | $ | 1,285.6 | |||||||
Average interest rate | 5.8 | % | 6.1 | % | |||||||||||
Floating rate debt | $ | 485.2 | $ | 485.2 | $ | 994.1 | $ | 994.1 | |||||||
Average interest rate | 1.1 | % | 1.5 | % | |||||||||||
______________________
(1) | Excludes discounts on long-term notes. Fair value was estimated primarily based upon quoted market prices for the Company's long-term notes. |
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Many of the Company’s subsidiaries, on occasion, purchase and sell products in currencies other than their functional currencies. This subjects the Company to the risks associated with fluctuations in foreign currency exchange rates. The Company reduces this risk by utilizing natural hedging (offsetting receivables and payables) as well as by creating offsetting positions through the use of derivative financial instruments, primarily forward foreign exchange contracts with maturities of less than sixty days. The Company continues to have exposure to foreign currency risks to the extent they are not hedged. The Company adjusts all foreign denominated balances and any outstanding foreign exchange contracts to fair market value through the consolidated statements of operations. Therefore, the market risk related to foreign exchange contracts is offset by changes in valuation of the underlying items being hedged. The asset or liability representing the fair value of foreign exchange contracts is classified in the captions “other current assets” or “accrued expenses and other,” as applicable, in the accompanying consolidated balance sheets. A hypothetical 10% change in currency exchange rates under the contracts outstanding at June 29, 2013 would result in an increase or decrease of approximately $20.6 million to the fair value of the forward foreign exchange contracts, which would generally be offset by an opposite effect on the related hedged positions.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data are listed under Item 15 of this Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
The Company’s management, including its Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the reporting period covered by this report on Form 10-K. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report on Form 10-K, the Company’s disclosure controls and procedures are effective such that material information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified by the Securities and Exchange Commission’s rules and forms and is accumulated and communicated to management, including the Company’s principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
During the fourth quarter of fiscal 2013, there were no changes to the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
The Company’s management, including its Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America. Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of June 29, 2013. In making this assessment, management used the 1992 framework established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and concluded that the Company maintained effective internal control over financial reporting as of June 29, 2013.
The Company’s independent registered public accounting firm, KPMG LLP, has audited the effectiveness of the Company’s internal controls over financial reporting as of June 29, 2013, as stated in its audit report which is included herein.
Item 9B. Other Information
Not applicable.
33
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information called for by Item 10 is incorporated in this Report by reference to the Company’s definitive proxy statement relating to the Annual Meeting of Stockholders anticipated to be held on November 8, 2013.
Item 11. Executive Compensation
The information called for by Item 11 is incorporated in this Report by reference to the Company’s definitive proxy statement relating to the Annual Meeting of Stockholders anticipated to be held on November 8, 2013.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information called for by Item 12 is incorporated in this Report by reference to the Company’s definitive proxy statement relating to the Annual Meeting of Stockholders anticipated to be held on November 8, 2013.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information called for by Item 13 is incorporated in this Report by reference to the Company’s definitive proxy statement relating to the Annual Meeting of Shareholders anticipated to be held on November 8, 2013.
Item 14. Principal Accounting Fees and Services
The information called for by Item 14 is incorporated in this Report by reference to the Company’s definitive proxy statement relating to the Annual Meeting of Stockholders anticipated to be held on November 8, 2013.
34
PART IV
Item 15. Exhibits and Financial Statement Schedules
a. The following documents are filed as part of this Report:
Page | ||
1. | Consolidated Financial Statements: | |
Avnet, Inc. and Subsidiaries Consolidated Financial Statements: | ||
2. | Financial Statement Schedule: | |
Schedules other than that above have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto | ||
3. | Exhibits | |
35
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
AVNET, INC. (Registrant) | ||
By: | /s/ RICHARD HAMADA | |
Richard Hamada | ||
Chief Executive Officer and Director | ||
Date: August 9, 2013
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below hereby authorizes and appoints each of Richard Hamada and Kevin Moriarty his or her attorneys-in-fact, for him or her in any and all capacities, to sign any amendments to this Report, and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorneys-in-fact, or their substitute, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on August 9, 2013.
Signature | Title | |
/s/ RICHARD HAMADA | Chief Executive Officer and Director (Principal Executive Officer) | |
Richard Hamada | ||
/s/ WILLIAM H. SCHUMANN, III | Chairman of the Board and Director | |
William H. Schumann, III | ||
/s/ J. VERONICA BIGGINS | Director | |
J. Veronica Biggins | ||
/s/ MICHAEL A. BRADLEY | Director | |
Michael A. Bradley | ||
/s/ R. KERRY CLARK | Director | |
R. Kerry Clark | ||
/s/ JAMES A. LAWRENCE | Director | |
James A. Lawrence | ||
/s/ FRANK R. NOONAN | Director | |
Frank R. Noonan | ||
/s/ RAY M. ROBINSON | Director | |
Ray M. Robinson | ||
/s/ WILLIAM P. SULLIVAN | Director | |
William P. Sullivan | ||
/s/ KEVIN MORIARTY | Chief Financial Officer (Principal Financial and Accounting Officer) | |
Kevin Moriarty | ||
36
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Avnet, Inc.:
We have audited the accompanying consolidated balance sheets of Avnet, Inc. and subsidiaries (the Company) as of June 29, 2013 and June 30, 2012, and the related consolidated statements of operations, comprehensive income, shareholders' equity, and cash flows for each of the years in the three-year period ended June 29, 2013. In connection with our audits of the consolidated financial statements, we have also audited the financial statement schedule for each of the years in the three-year period ended June 29, 2013, as listed in the accompanying index. We also have audited the Company's internal control over financial reporting as of June 29, 2013, based on the 1992 criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these consolidated financial statements, an opinion on the financial statement schedule and an opinion on the Company's internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Avnet, Inc. and subsidiaries as of June 29, 2013 and June 30, 2012, and the results of their operations and their cash flows for each of the years in the three-year period ended June 29, 2013, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule for each of the years in the three-year period ended June 29, 2013, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. Furthermore, in our opinion, Avnet, Inc. maintained, in all material respects, effective internal control over financial reporting as of June 29, 2013, based on the 1992 criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
/s/ KPMG LLP
Phoenix, Arizona
August 9, 2013
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AVNET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 29, 2013 | June 30, 2012 | ||||||
(Thousands, except share amounts) | |||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 1,009,343 | $ | 1,006,864 | |||
Receivables, less allowances of $95,656 and $106,319, respectively (Note 3) | 4,868,973 | 4,607,324 | |||||
Inventories | 2,264,341 | 2,388,642 | |||||
Prepaid and other current assets | 214,221 | 251,609 | |||||
Total current assets | 8,356,878 | 8,254,439 | |||||
Property, plant and equipment, net (Note 5) | 492,606 | 461,230 | |||||
Goodwill (Notes 2 and 6) | 1,261,288 | 1,100,621 | |||||
Other assets | 363,908 | 351,576 | |||||
Total assets | $ | 10,474,680 | $ | 10,167,866 | |||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Borrowings due within one year (Notes 3 and 7) | $ | 838,190 | $ | 872,404 | |||
Accounts payable | 3,278,152 | 3,230,765 | |||||
Accrued expenses and other (Note 8) | 705,102 | 695,483 | |||||
Total current liabilities | 4,821,444 | 4,798,652 | |||||
Long-term debt (Note 7) | 1,206,993 | 1,271,985 | |||||
Other long-term liabilities (Notes 9 and 10) | 157,118 | 191,497 | |||||
Total liabilities | 6,185,555 | 6,262,134 | |||||
Commitments and contingencies (Notes 11 and 13) | |||||||
Shareholders’ equity (Notes 4, 12 and 14): | |||||||
Common stock $1.00 par; authorized 300,000,000 shares; issued 137,127,000 shares and 142,586,000 shares, respectively | 137,127 | 142,586 | |||||
Additional paid-in capital | 1,320,901 | 1,263,817 | |||||
Retained earnings | 2,802,966 | 2,545,858 | |||||
Accumulated other comprehensive income (loss) (Note 4) | 28,895 | (45,832 | ) | ||||
Treasury stock at cost, 38,238 shares and 37,872 shares, respectively | (764 | ) | (697 | ) | |||
Total shareholders’ equity | 4,289,125 | 3,905,732 | |||||
Total liabilities and shareholders’ equity | $ | 10,474,680 | $ | 10,167,866 | |||
See notes to consolidated financial statements.
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AVNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended | |||||||||||
June 29, 2013 | June 30, 2012 | July 2, 2011 | |||||||||
(Thousands, except share amounts) | |||||||||||
Sales | $ | 25,458,924 | $ | 25,707,522 | $ | 26,534,413 | |||||
Cost of sales | 22,479,123 | 22,656,965 | 23,426,608 | ||||||||
Gross profit | 2,979,801 | 3,050,557 | 3,107,805 | ||||||||
Selling, general and administrative expenses | 2,204,319 | 2,092,807 | 2,100,650 | ||||||||
Restructuring, integration and other charges (Note 17) | 149,501 | 73,585 | 77,176 | ||||||||
Operating income | 625,981 | 884,165 | 929,979 | ||||||||
Other income (expense), net | (74 | ) | (5,442 | ) | 10,724 | ||||||
Interest expense | (107,653 | ) | (90,859 | ) | (92,452 | ) | |||||
Gain on bargain purchase and other (Note 2) | 31,011 | 2,918 | 22,715 | ||||||||
Income before income taxes | 549,265 | 790,782 | 870,966 | ||||||||
Income tax provision (Note 9) | 99,192 | 223,763 | 201,897 | ||||||||
Net income | $ | 450,073 | $ | 567,019 | $ | 669,069 | |||||
Net earnings per share (Note 14): | |||||||||||
Basic | $ | 3.26 | $ | 3.85 | $ | 4.39 | |||||
Diluted | $ | 3.21 | $ | 3.79 | $ | 4.34 | |||||
Shares used to compute earnings per share (Note 14): | |||||||||||
Basic | 137,951 | 147,278 | 152,481 | ||||||||
Diluted | 140,003 | 149,553 | 154,337 | ||||||||
See notes to consolidated financial statements.
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AVNET, INC. AND SUBSIDIARIES