AVNET INC
10-Qs and 10-Ks
PROXIES
Table of Contents
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 July 2, 2011
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.) |
|
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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
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.
o
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 | Smaller reporting company o | |||
| (Do not check if a smaller reporting company) |
Indicate by checkmark 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 January 1, 2011 (the last business day of the registrant’s
most recently completed second fiscal quarter) was $4,995,335,220.
As of July 29, 2011, the total number of shares outstanding of the registrant’s Common Stock
was 152,807,450 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 4, 2011 are
incorporated herein by reference in Part III of this Report.
TABLE OF CONTENTS
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PART I
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PART IV
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| Exhibit 10.21 | ||||||||
| Exhibit 12.1 | ||||||||
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Table of Contents
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 industrial distributors, based on sales,
of electronic components, enterprise computer and storage products and embedded subsystems. Avnet
creates a vital link in the technology supply chain that connects more than 300 of the world’s
leading electronic component and computer product manufacturers and software developers with a
global customer base of more than 100,000 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 with assembly or other value added by Avnet. Additionally, Avnet
provides engineering design, materials management and logistics services, system integration and
configuration, and supply chain services that can be customized to meet the 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 the 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:
| Fiscal 2011 | Percentage | |||||||
| Region | Sales | of Sales | ||||||
| (Millions) | ||||||||
|
EM Americas
|
$ | 5,113.8 | 19.3 | % | ||||
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EM EMEA
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4,816.3 | 18.1 | ||||||
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EM Asia
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5,136.1 | 19.4 | ||||||
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Total EM
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15,066.2 | 56.8 | ||||||
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TS Americas
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6,404.7 | 24.1 | ||||||
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TS EMEA
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3,577.1 | 13.5 | ||||||
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TS Asia
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1,486.4 | 5.6 | ||||||
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Total TS
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11,468.2 | 43.2 | ||||||
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Total Avnet
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$ | 26,534.4 | 100.0 | % | ||||
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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 and interconnect, passive and electromechanical devices
(“IP&E”) and embedded products for more than 300 of 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 peripheral, industrial
and manufacturing, medical equipment, military 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 from the
design phase through new product introduction and throughout the product lifecycle, 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 Design Chain Services offers 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 provides 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 develops 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 Electronics Marketing 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. The Embedded Solutions group represents the combination of
the EM Americas existing embedded business, the acquired Bell Microproducts Inc. embedded business
and the TS Americas embedded business that was transferred to EM Americas in the first quarter of
fiscal 2011.
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 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, that includes a host of powerful functions such
as parametric parts searches, bill of material optimization and parts 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 EMEA does business in over 40 European countries, and over 10 countries in the Middle
East and Africa. EM Asia goes to market with sales and marketing divisions within China, South
Asia, Taiwan and Japan. All regions within EM provide the Design Chain Services and Supply Chain
Services described above.
Technology Solutions
As a global IT solutions distributor, TS collaborates with its customers and suppliers to
create and deliver services, software and hardware solutions that address the business needs of
end-user customers locally and around the world. TS focuses on the global value-added distribution
of enterprise computing servers and systems, software, storage, services and complex solutions from
the world’s foremost technology manufacturers, marketing and selling them to and through the VAR
channel. TS also serves the worldwide OEM market for computing technology, system integrators and
non-PC OEMs that require embedded systems and solutions including engineering, product prototyping,
integration and other value-added services. The operating group has sales and marketing divisions
dedicated to these customer segments as well as independent software vendors.
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TS enables VARs to grow faster by helping them understand their customers’ unique business
requirements so that they can tailor a complete IT solution spanning supplier lines and delivering
a higher return on investment. Avnet SolutionsPath
®
offers a proven methodology
comprising business analysis and planning, training and enablement, and ongoing support to help
partners quickly 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 logistics, sales,
marketing, financial and technical services, including engineering support, systems integration and
configurations.
In EMEA and Asia/Pacific, TS provides embedded computing solutions including technical design,
integration and assembly to developers of application-specific computing solutions in the non-PC
market. Developers include OEMs targeting the medical, telecommunications, industrial and digital
editing markets. In these regions, TS also provides the latest hard disk drives, microprocessor,
motherboard and DRAM module technologies to manufacturers of general-purpose computers and system
builders.
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 | 2011 | 2010 | 2009 | |||||||||
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Americas
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43 | % | 44 | % | 47 | % | ||||||
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EMEA
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32 | 31 | 32 | |||||||||
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Asia/Pac
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25 | 25 | 21 | |||||||||
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100 | % | 100 | % | 100 | % | ||||||
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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 grow its geographic and
market coverage in world markets for electronic components and computer products and solutions.
This program was a significant factor in Avnet becoming one of the largest industrial distributors
of such products and services worldwide. Avnet expects to continue to pursue strategic acquisitions
as part of its overall growth strategy, with its focus likely directed primarily at smaller targets
in markets where the Company is seeking to expand its market presence, increase its scale and scope
and/or increase its product or service offerings.
During fiscal 2011, the Company completed seven acquisitions, the most significant of which
was the acquisition of Bell Microproducts Inc. (“Bell”), a value-added distributor of storage and
server products and solutions and computer components products, providing integration and support
services to OEMs, VARs, system builders and end users in the U.S., Canada, EMEA and Latin America.
Bell operated both a distribution and single tier reseller business and generated sales of
approximately $3.0 billion in calendar 2009, of which 42%, 41% and 17% was generated in North
America, EMEA and Latin America, respectively. The consideration for the transaction totaled $255
million for the equity of Bell which consisted of $7.00 in cash for each share of Bell common stock
outstanding, cash payment for Bell equity awards, and cash payments required under existing Bell
change of control agreements, plus the assumption of $323 million of Bell net debt. Of the debt
acquired, Avnet repaid approximately $210 million of debt (including associated fees) immediately
after closing. As of the end of fiscal 2011, the Company has completed the integration of Bell into
both the EM and TS operating groups and expects the full impact of the cost synergies to be
realized in the first quarter of fiscal 2012.
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See Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
in Part II of this Form 10-K for additional information on acquisitions completed during
fiscal 2011, 2010 and 2009.
Major Products
One of Avnet’s competitive strengths is the breadth and quality of the suppliers whose
products it distributes. IBM products accounted for approximately 12%, 15% and 15% of the
Company’s consolidated sales during fiscal 2011, 2010 and 2009, respectively, and was the only
supplier from which sales of its products exceeded 10% of consolidated sales. Listed in the table
below are the major product categories and the Company’s approximate sales of each during the past
three fiscal years:
| Years Ended | ||||||||||||
| July 2, | July 3, | June 27, | ||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| (Millions) | ||||||||||||
|
Semiconductors
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$ | 14,149.3 | $ | 10,098.7 | $ | 8,324.0 | ||||||
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Computer products
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10,284.6 | 7,302.8 | 6,393.4 | |||||||||
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Connectors
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1,041.4 | 841.4 | 735.2 | |||||||||
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Passives, electromechanical and other
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1,059.1 | 917.3 | 777.3 | |||||||||
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$ | 26,534.4 | $ | 19,160.2 | $ | 16,229.9 | ||||||
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Competition & Markets
Avnet is one of the world’s largest industrial distributors, based on sales, of electronic
components and computer products and services. The Company has more than 300 locations worldwide as
well as a limited number of instances where Avnet-owned product is stored in customer facilities.
Some of these locations contain sales, warehousing and administrative functions for multiple sales
and marketing units.
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. 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.
Another 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. However, 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.
These agreements typically provide certain protections for product obsolescence and price erosion
and are generally cancelable upon 30 to 180 days’ notice. In most cases, these agreements 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.
Another 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
Technology Solutions business during the December quarter primarily driven by the fiscal year end
of a key supplier.
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Number of Employees
At July 2, 2011, Avnet had approximately 17,600 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:
Avnet, Inc.
2211 South 47 th Street
Phoenix, Arizona 85034
(480) 643-2000
Attention: Corporate Secretary
2211 South 47 th 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.
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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 revenues and gross margins.
The Company’s revenues and gross profit margins depend significantly on worldwide economic
conditions, the demand for its products and services and the financial condition of its customers.
Economic weakness and uncertainty have in the past resulted, and may result in the future, in
decreased revenues and gross profit margins. Economic weakness and uncertainty also make it more
difficult for the Company to forecast with a great deal of confidence the overall supply and demand
throughout the IT supply chain.
While the Company’s operating results over the past four quarters would suggest that the
business has experienced a significant recovery, there can be no assurance that the recovery to
date will continue at the current pace or at all; nor can there be any assurance that such economic
volatility experienced recently will not reoccur or continue.
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. 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. 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.
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 of the 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.
An industry down-cycle in semiconductors could significantly affect the Company’s operating results
as a large portion of revenues comes 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
2011. Management expects IBM products and services to continue to account for roughly a similar
percentage of the Company’s consolidated sales in fiscal year 2012. 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 the Company’s gross margins, it could materially and adversely
affect the Company’s results of operations, financial condition or liquidity.
8
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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 and evolving 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 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
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 for products and services, or were to become unwilling or
unable to make 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’s non-U.S. locations represent a significant and growing portion of its revenue, and
consequently, the Company is increasingly exposed to risks associated with operating
internationally.
During fiscal year 2011, 2010 and 2009, approximately 62%, 60% and 58%, 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, business licensing
requirements and anti-corruption laws, the failure of which could result in severe penalties
including monetary fines, criminal proceedings and suspension of export privileges;
|
| • |
changing tax laws and regulations;
|
| • |
regulatory requirements and prohibitions that differ between jurisdictions;
|
| • |
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;
|
| • |
differing environmental regulations and employment practices and labor issues; and
|
||
| • |
the risk of non-compliance with local laws.
|
9
Table of Contents
The potential criminal penalties for violations of export regulations and anti-corruption
laws, particularly anti-bribery, data privacy laws and environmental laws and regulations in many
jurisdictions, create heightened risks for the Company’s international operations. In the event
that a governing regulatory body determined that the Company had violated applicable export
regulations or anti-corruption laws, the Company could be fined significant sums, incur sizable
legal defense costs and/or its export capabilities could be restricted, which could have a material
and adverse effect on the Company’s business. While the Company has and will continue to adopt
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 historically has pursued a strategic acquisition program to grow its global business for
electronic and computer products, thereby enabling Avnet to solidify and maintain its leadership
position in the marketplace. Acquisitions involve risks and uncertainties such as expansion into
new geographic markets and business areas and diversion of management’s attention from existing
business operations. 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.
Consequently, 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 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.
If the Company fails to maintain effective internal controls, it may not be able to report its
financial results accurately or timely or detect fraud, which could have a material adverse effect
on the Company’s business or stock price.
Effective internal controls are necessary for the Company to provide reasonable assurance with
respect to its financial reports and to effectively prevent fraud. If the Company cannot provide
reasonable assurance with respect to its financial reports and effectively prevent 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 and the market price of the
Company’s securities.
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 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 on-going IT projects designed to streamline or optimize its 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 operations
or the accurate and timely recording and reporting of financial data. In addition, these systems
are subject to computer hacking or other general system failure. Maintaining and operating these
systems requires continuous investments. Failure of any of these information systems 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.
10
Table of Contents
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 and centralized
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 our 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.
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 July 2, 2011, Avnet had total
debt outstanding of $1.517 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 some 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
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.
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
|
| • |
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.
In addition to the specific factors described above, general economic or business conditions,
domestic and foreign, may be less favorable than management expected and, if such conditions
persist for a sustained period of time, could eventually adversely impact the Company’s sales or
its ability to collect receivables from some of its customers.
11
Table of Contents
| Item 1B. |
Unresolved Staff Comments
|
Not applicable.
| Item 2. |
Properties
|
The Company owns and leases approximately 1,151,000 and 5,523,000 square feet of space,
respectively, of which approximately 36% is located in the United States. The following table
summarizes certain of the Company’s key facilities.
| Sq. | Leased or | |||||||
| Location | Footage | Owned | Primary Use | |||||
|
Poing, Germany
|
427,000 | 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 | |||||
|
Chandler, Arizona
|
231,000 | Leased | TS warehousing, integration and value-added operations | |||||
|
Tsuen Wan, Hong Kong
|
181,000 | Leased | EM warehousing and value-added operations | |||||
|
Phoenix, Arizona
|
176,000 | Leased | Corporate and EM headquarters | |||||
|
Tempe, Arizona
|
132,000 | Leased | TS headquarters | |||||
|
Nogales, Mexico
|
124,000 | Leased | EM warehousing and value-added operations | |||||
|
Doral, Florida
|
120,000 | Leased | TS warehousing and value-added operations | |||||
|
Loyang, Singapore
|
116,000 | Leased | TS 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 associated with the environmental clean-up of sites in which the Company is
participating.
The Company and/or its subsidiaries are also parties to various 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, cash flow or results of operations.
12
Table of Contents
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:
| 2011 | 2010 | |||||||||||||||
| Fiscal Quarters | High | Low | High | Low | ||||||||||||
|
1st
|
$ | 27.08 | $ | 22.86 | $ | 27.33 | $ | 20.31 | ||||||||
|
2nd
|
33.34 | 26.61 | 30.42 | 23.67 | ||||||||||||
|
3rd
|
36.97 | 31.88 | 30.53 | 26.35 | ||||||||||||
|
4th
|
37.81 | 29.97 | 33.49 | 23.93 | ||||||||||||
The Company has not paid dividends since fiscal 2002 and does not currently contemplate any
future dividend payments.
Record Holders
As of July 29, 2011, there were 3,152 registered holders of record of Avnet’s common stock.
Equity Compensation Plan Information as of July 2, 2011
| Number of Securities | |||||||||||
| Number of Securities | Remaining Available for | ||||||||||
| to be Issued Upon | Weighted-Average | Future Issuance Under Equity | |||||||||
| Exercise of | Exercise Price of | Compensation Plans | |||||||||
| Outstanding Options, | Outstanding Options, | (Excluding Securities | |||||||||
| Plan Category | Warrants and Rights | Warrants and Rights | Reflected in Column (a)) | ||||||||
| (a) | (b) | (c) | |||||||||
|
Equity compensation plans approved by security holders
|
5,320,709 | (1) | $ | 21.79 | 6,694,816 | (2) | |||||
| (1) |
Includes 3,059,215 shares subject to options outstanding
and 1,414,784 stock incentive shares and 846,710
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
2012 relating to the level of achievement reached under
the 2009 performance share program which ended July 2,
2011 (see Note 12 in the
Notes to Consolidated Financial
Statements
included in Item 15 of this Report)
|
|
| (2) |
Does not include 58,707 shares available for future
issuance under the Employee Stock Purchase Plan, which is
a non-compensatory plan.
|
13
Table of Contents
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 July 1, 2006 to July 2, 2011. During fiscal 2011, two of the companies included in the
Company’s fiscal 2010 peer group (Bell Microproducts Inc. and Nu Horizons Electronics Corp)
terminated their respective registrations with the SEC. The Company’s new peer group consists of
Agilysys, Inc., Anixter International, Inc., Arrow Electronics, Inc., Brightpoint, Inc., Ingram
Micro, Inc., Insight Enterprises, Inc., Scansource, Inc., Synnex Corp. and Tech Data Corp. The
Company’s old peer group, which is also included below for comparative purposes, consisted of Arrow
Electronics, Inc., Ingram Micro, Inc., and Tech Data Corp. Bell Microproducts Inc. and Nu Horizons
Electronics Corp are not included in the old peer group below.
| 07/1/06 | 06/30/07 | 06/28/08 | 06/27/09 | 07/3/10 | 07/2/11 | |||||||||||||||||||
|
Avnet, Inc.
|
100.00 | 198.00 | 137.61 | 107.49 | 119.78 | 162.59 | ||||||||||||||||||
|
S&P 500
|
100.00 | 120.59 | 104.77 | 77.30 | 88.46 | 115.61 | ||||||||||||||||||
|
Old Peer Group
|
100.00 | 115.02 | 94.26 | 80.93 | 79.40 | 119.43 | ||||||||||||||||||
|
New Peer Group
|
100.00 | 120.11 | 94.66 | 78.10 | 79.95 | 118.59 | ||||||||||||||||||
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.
14
Table of Contents
Issuer Purchases of Equity Securities
The following table presents the Company’s monthly purchases of common stock during the fourth
quarter of fiscal 2011:
| Maximum Number (or | ||||||||||||||||
| Total Number of | Approximate Dollar | |||||||||||||||
| Total | Shares Purchased as | Value) of Shares That | ||||||||||||||
| Number of | Part of Publicly | may yet be Purchased | ||||||||||||||
| Shares | Average Price | Announced Plans or | Under the Plans or | |||||||||||||
| Period | Purchased | Paid per Share | Programs | Programs | ||||||||||||
|
April
|
4,100 | $ | 34.80 | — | — | |||||||||||
|
May
|
6,700 | $ | 37.07 | — | — | |||||||||||
|
June
|
4,300 | $ | 31.74 | — | — | |||||||||||
The purchases of Avnet common stock noted above were made on the open market to obtain shares
for purchase under the Company’s Employee Stock Purchase Plan.
In August 2011, the Board of Directors approved the repurchase of up to an aggregate of $500
million of shares of the Company’s common stock through a share repurchase program. The Company
plans to repurchase stock from time to time at the discretion of management in open market or
privately negotiated transactions or otherwise, subject to applicable laws, regulations and
approvals, strategic considerations, market conditions and other factors. The Company may
terminate or limit the stock repurchase program at any time without prior notice.
| Item 6. |
Selected Financial Data
|
| Years Ended | ||||||||||||||||||||
| July 2, | July 3, | June 27, | June 28, | June 30, | ||||||||||||||||
| 2011 | 2010 | 2009 (a) | 2008 (a) | 2007 (a) | ||||||||||||||||
| (Millions, except for per share and ratio data) | ||||||||||||||||||||
|
Income:
|
||||||||||||||||||||
|
Sales
|
$ | 26,534.4 | $ | 19,160.2 | $ | 16,229.9 | $ | 17,952.7 | $ | 15,681.1 | ||||||||||
|
Gross profit
|
3,107.8 | 2,280.2 | 2,023.0 | 2,313.7 | 2,048.6 | |||||||||||||||
|
Operating income (loss)
|
930.0 | (b) | 635.6 | (c) | (1,019.0 | )(d) | 710.8 | (e) | 678.7 | (f) | ||||||||||
|
Income tax provision
|
201.9 | (b) | 174.7 | (c) | 34.7 | (d) | 203.8 | (e) | 187.9 | (f) | ||||||||||
|
Net income (loss)
|
669.1 | (b) | 410.4 | (c) | (1,129.7 | )(d) | 489.6 | (e) | 384.4 | (f) | ||||||||||
|
Financial Position:
|
||||||||||||||||||||
|
Working capital(g)
|
3,749.5 | 3,190.6 | 2,688.4 | 3,191.3 | 2,711.2 | |||||||||||||||
|
Total assets
|
9,905.6 | 7,782.4 | 6,273.5 | 8,195.2 | 7,343.7 | |||||||||||||||
|
Long-term debt
|
1,273.5 | 1,243.7 | 946.6 | 1,169.3 | 1,127.9 | |||||||||||||||
|
Shareholders’ equity
|
4,056.1 | 3,009.1 | 2,760.9 | 4,141.9 | 3,417.4 | |||||||||||||||
|
Per Share:
|
||||||||||||||||||||
|
Basic earnings (loss)
|
4.39 | (b) | 2.71 | (c) | (7.49 | )(d) | 3.26 | (e) | 2.60 | (f) | ||||||||||
|
Diluted earnings (loss)
|
4.34 | (b) | 2.68 | (c) | (7.49 | )(d) | 3.21 | (e) | 2.57 | (f) | ||||||||||
|
Book value per diluted share
|
26.28 | 19.66 | 18.30 | 27.17 | 22.84 | |||||||||||||||
|
Ratios:
|
||||||||||||||||||||
|
Operating income (loss) margin
on sales
|
3.5 | %(b) | 3.3 | %(c) | (6.3) | %(d) | 4.0 | %(e) | 4.3 | %(f) | ||||||||||
|
Net income (loss) margin on sales
|
2.5 | %(b) | 2.1 | %(c) | (7.0) | %(d) | 2.7 | %(e) | 2.5 | %(f) | ||||||||||
|
Return on capital
|
15.2 | %(b) | 14.0 | %(c) | (26.6) | %(d) | 11.0 | %(e) | 11.2 | %(f) | ||||||||||
|
Quick
|
1.2:1 | 1.4:1 | 1.5:1 | 1.4:1 | 1.3:1 | |||||||||||||||
|
Working capital
|
1.8:1 | 1.9:1 | 2.1:1 | 2.1:1 | 2.0:1 | |||||||||||||||
|
Total debt to capital
|
27.2 | % | 29.8 | % | 26.0 | % | 22.7 | % | 25.7 | % | ||||||||||
15
Table of Contents
| (a) |
As adjusted for the retrospective application of an accounting standard. The Financial
Accounting Standards Board
issued authoritative guidance which 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 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.
|
| June 27, | June 28, | June 30, | ||||||||||
| Adjustments-increase (decrease) | 2009 | 2008 | 2007 | |||||||||
| (Millions, except per share data) | ||||||||||||
|
Selling, general and adminstrative expenses
|
$ | (0.3 | ) | $ | (0.4 | ) | $ | (0.4 | ) | |||
|
Interest expense
|
12.2 | 15.9 | 14.8 | |||||||||
|
Income tax provision
|
(4.6 | ) | (6.0 | ) | (5.7 | ) | ||||||
|
Net income
|
(7.3 | ) | (9.5 | ) | (8.7 | ) | ||||||
|
Basic EPS
|
$ | (0.05 | ) | $ | (0.06 | ) | $ | (0.05 | ) | |||
|
Diluted EPS
|
$ | (0.05 | ) | $ | (0.06 | ) | $ | (0.06 | ) | |||
|
|
||||||||||||
|
Prepaid and other current assets
|
$ | — | $ | (0.3 | ) | $ | (0.7 | ) | ||||
|
Other assets
|
— | (4.6 | ) | (10.7 | ) | |||||||
|
Long term debt
|
— | (12.2 | ) | (28.1 | ) | |||||||
|
Shareholders’ equity
|
$ | — | $ | 7.3 | $ | 16.8 | ||||||
| (b) |
Includes the impact of restructuring, integration and other items which totaled $77.2 million
pre-tax, $56.2 million after tax and $0.36 per share on a diluted basis, 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 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 18 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 restructuring, integration and other items which totaled $25.4 million
pre-tax, $18.8 million after tax and $0.12 per share on a diluted basis and includes 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 (see Note 18 in the
Notes to the Consolidated Financial Statements
contained in Item 15 of this Report for further discussion of these items).
|
|
| (d) |
Includes goodwill and intangible asset impairment charges of $1.41 billion pre-tax, $1.38
billion after tax and $9.13 per share and includes the impact of restructuring, integration
and other items which totaled $99.3 million pre-tax, $34.9 million after tax and $0.23 per
share (see Note 18 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 restructuring, integration and other items, gain on sale of assets and
other items which totaled to a gain of $11.0 million pre-tax, $14.7 million after tax and
$0.09 per share on a diluted basis.
|
|
| (f) |
Includes the impact of restructuring, integration and other items, gain on sale of assets,
debt extinguishment costs and other items which amounted to charges of $31.7 million pre-tax,
$20.0 million after tax and $0.13 per share on a diluted basis.
|
|
| (g) |
This calculation of working capital is defined as current assets less current liabilities.
|
16
Table of Contents
| 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
2011 and 2009 contained 52 weeks while fiscal 2010 contained 53 weeks. This extra week, which
occurred in the first quarter of fiscal 2010, impacts the year-over-year analysis in this MD&A.
There are references to the impact of foreign currency translation in the discussion of the
Company’s results of operations. Results for the full fiscal year 2011 or 2010 were not
significantly impacted by the movement of foreign currency exchanges rates as, for example, the
U.S. Dollar strengthened against the Euro by approximately 2% during fiscal 2011 and the U.S.
Dollar weakened against the Euro by approximately 1% during fiscal 2010. However, fluctuations
during the quarters of fiscal 2011 had a more pronounced impact on the Company’s comparative
results as described in the Company’s Form 10-Q’s filed with the SEC. 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, for fiscal 2011 sales are adjusted for: (i) a
divestiture 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;
(ii) the impact of the extra week of sales in the prior year first quarter due to the
“52/53 week” fiscal year, and (iii) the transfer of the existing embedded business from
TS Americas to EM Americas that occurred in the first quarter of fiscal 2011. Sales
taking into account the combination of these adjustments are referred to as “pro forma
sales” or “organic sales.”
|
||
| • |
Operating income excluding restructuring, integration and other charges incurred in
fiscal 2011, 2010 and 2009 as well as the non-cash goodwill and intangible asset
impairment charges recognized during fiscal 2009. The reconciliation to GAAP is
presented in the following table.
|
| Years Ended | ||||||||||||
| July 2, | July 3, | June 27, | ||||||||||
| 2011 | 2010 | 2009 | ||||||||||
|
|
(Thousands) | |||||||||||
|
GAAP operating income (loss)
|
$ | 929,979 | $ | 635,600 | $ | (1,018,998 | ) | |||||
|
Impairment charges
|
— | — | 1,411,127 | |||||||||
|
Restructuring, integration and other
|
77,176 | 25,419 | 99,342 | |||||||||
|
|
||||||||||||
|
Adjusted operating income
|
$ | 1,007,155 | $ | 661,019 | $ | 491,471 | ||||||
|
|
||||||||||||
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.
17
Table of Contents
Results of Operations
Executive Summary
At the beginning of fiscal 2011, the Company completed three significant acquisitions that,
when combined with strong organic growth, delivered $7.4 billion in revenue growth, or 38.5%, year
over year, to a record $26.5 billion. Although the acquired businesses have product lines with
lower operating margins than Avnet’s other product lines, operating income grew faster than revenue
with 46.3% growth year over year driven by operating leverage and synergies as a result of
integration activities that were on-going through the fiscal year. Finally, earnings per share on
a diluted basis grew faster than revenue and operating income with an increase of 63% year over
year.
Year-over-year organic revenue growth for EM was 21.9% and was strongest in the EMEA region
due to demand in the industrial markets. Year-over-year organic revenue growth for TS was 11.3%
and was driven primarily by demand for storage and servers. Gross profit margin was down 19 basis
points year over year to 11.7% as the acquired Bell business has lower gross profit margins than
the Company’s legacy businesses due to its product mix. EM gross profit margin was up 10 basis
points year over year which was impacted by the combination of improvement in the EM core business,
partially offset by the lower gross profit margin embedded business acquired from Bell and the
embedded business that was transferred from TS Americas. TS gross profit margin declined 52 basis
points year over year primarily attributable to the EMEA region which was impacted by the
integration of the Bell business because of its lower gross profit margin profile than the other TS
EMEA product lines.
Operating income margin was up 19 basis points year over year to 3.5%. EM operating income
margins improved 105 basis points year over year to 5.5%. The improvement was attributable to
operating leverage primarily in EMEA which was due to strong revenue growth and continued expense
efficiencies. TS operating income margin declined 57 basis points year over year primarily due to
lower operating income margins of the acquired Bell business. The integrations of the acquired
businesses have been completed as of the end of fiscal 2011. The businesses acquired during fiscal
2011 impacted both operating groups and, as a result of integration activities that occurred during
the fiscal year, the fiscal 2011 results were positively impacted by synergies to the extent
actions were completed. In particular, the expected synergies for the Bell acquisition were
estimated to be over $60 million in annualized cost savings, however, the full benefit of the
synergies is expected to be realized in the first quarter of fiscal 2012.
Three-Year Analysis of Sales: By Operating Group and Geography
| Years Ended | Percent Change | |||||||||||||||||||||||||||||||
| July 2, | % of | July 3, | % of | June 27, | % of | 2011 to | 2010 to | |||||||||||||||||||||||||
| 2011 | Total | 2010 | Total | 2009 | Total | 2010 | 2009 | |||||||||||||||||||||||||
| (Dollars in millions) | ||||||||||||||||||||||||||||||||
|
Sales by Operating Group:
|
||||||||||||||||||||||||||||||||
|
EM Americas
|
$ | 5,113.8 | 19.3 | % | $ | 3,434.6 | 17.9 | % | $ | 3,288.3 | 20.3 | % | 48.9 | % | 4.5 | % | ||||||||||||||||
|
EM EMEA
|
4,816.3 | 18.1 | 3,651.1 | 19.0 | 3,026.5 | 18.6 | 31.9 | 20.6 | ||||||||||||||||||||||||
|
EM Asia
|
5,136.1 | 19.4 | 3,881.1 | 20.3 | 2,878.0 | 17.7 | 32.3 | 34.9 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Total EM
|
15,066.2 | 56.8 | 10,966.8 | 57.2 | 9,192.8 | 56.6 | 37.4 | 19.3 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
TS Americas
|
6,404.7 | 24.1 | 4,932.7 | 25.8 | 4,283.9 | 26.4 | 29.8 | 15.2 | ||||||||||||||||||||||||
|
TS EMEA
|
3,577.1 | 13.5 | 2,297.2 | 12.0 | 2,241.9 | 13.8 | 55.7 | 2.5 | ||||||||||||||||||||||||
|
TS Asia
|
1,486.4 | 5.6 | 963.5 | 5.0 | 511.3 | 3.2 | 54.3 | 88.4 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Total TS
|
11,468.2 | 43.2 | 8,193.4 | 42.8 | 7,037.1 | 43.4 | 40.0 | 16.4 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Total Avnet, Inc.
|
$ | 26,534.4 | $ | 19,160.2 | $ | 16,229.9 | 38.5 | % | 18.1 | % | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Sales by Geographic Area:
|
||||||||||||||||||||||||||||||||
|
Americas
|
$ | 11,518.5 | 43.4 | % | $ | 8,367.3 | 43.7 | % | $ | 7,572.2 | 46.7 | % | 37.7 | % | 10.5 | % | ||||||||||||||||
|
EMEA
|
8,393.4 | 31.6 | 5,948.3 | 31.0 | 5,268.4 | 32.4 | 41.1 | 12.9 | ||||||||||||||||||||||||
|
Asia/Pacific
|
6,622.5 | 25.0 | 4,844.6 | 25.3 | 3,389.3 | 20.9 | 36.7 | 42.9 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
|
$ | 26,534.4 | $ | 19,160.2 | $ | 16,229.9 | ||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
18
Table of Contents
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 a pro forma basis as well
as on a reported basis.
| Approximate | ||||||||
| Annualized | Acquisition | |||||||
| Acquired Business | Group & Region | Revenues (1) | Date | |||||
| (Millions) | ||||||||
|
Fiscal 2011
|
||||||||
|
itX Group Ltd
|
TS Asia/Pac | $ | 160 | January 2011 | ||||
|
Center Cell
|
EM Americas | 5 | November 2010 | |||||
|
Eurotone
|
EM Asia/Pac | 30 | October 2010 | |||||
|
Broadband
|
EM Americas | 8 | October 2010 | |||||
|
Unidux
|
EM Asia/Pac | 370 | July 2010 | |||||
|
Tallard Technologies
|
TS Americas | 250 | July 2010 | |||||
|
Bell Microproducts Inc.
|
EM & TS Americas | 3,021 | July 2010 | |||||
|
|
TS EMEA | |||||||
|
|
||||||||
|
Fiscal 2010
|
||||||||
|
Servodata HP Division
|
TS EMEA | $ | 20 | April 2010 | ||||
|
PT Datamation
|
TS Asia/Pac | 90 | April 2010 | |||||
|
Sunshine Joint Stock Company
|
TS Asia/Pac | 30 | November 2009 | |||||
|
Vanda Group
|
TS Asia/Pac | 30 | October 2009 | |||||
|
|
||||||||
|
Fiscal 2009
|
||||||||
|
Abacus Group plc
|
EM EMEA | $ | 400 | January 2009 | ||||
|
Nippon Denso Industry Co., Ltd.
|
EM Asia/Pac | 140 | December 2008 | |||||
|
Ontrack Solutions Pvt. Ltd.
|
TS Asia/Pac | 13 | July 2008 | |||||
|
Horizon Technology Group plc
|
TS EMEA | 400 | June 2008 | |||||
|
Source Electronics Corporation
|
EM Americas | 82 | June 2008 | |||||
| (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.
|
Fiscal 2011 Comparison to Fiscal 2010
The table below provides the comparison of reported fiscal 2011 and 2010 sales for the Company
and its operating groups to pro forma (or organic) sales (as defined previously) to allow readers
to better assess and understand the Company’s revenue performance by operating group.
| Acquisition/ | Extra Week | 2011 to 2010 | ||||||||||||||||||
| Sales as | Divested | in | Pro Forma | Pro Forma | ||||||||||||||||
| Reported | Revenue | Q1 FY10 | Sales | Change | ||||||||||||||||
| (Dollars in millions) | ||||||||||||||||||||
|
EM
|
$ | 15,066.2 | $ | 44.9 | $ | — | $ | 15,111.1 | 21.9 | % | ||||||||||
|
TS
|
11,468.2 | (188.5 | ) | — | 11,279.7 | 11.3 | ||||||||||||||
|
|
||||||||||||||||||||
|
Fiscal 2011
|
$ | 26,534.4 | $ | (143.6 | ) | $ | — | $ | 26,390.8 | 17.1 | ||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
EM
|
$ | 10,966.8 | $ | 1,605.5 | $ | (174.3 | ) | $ | 12,398.0 | |||||||||||
|
TS
|
8,193.4 | 2,188.0 | (243.5 | ) | 10,137.9 | |||||||||||||||
|
|
||||||||||||||||||||
|
Fiscal 2010
|
$ | 19,160.2 | $ | 3,793.5 | $ | (417.8 | ) | $ | 22,535.9 | |||||||||||
|
|
||||||||||||||||||||
19
Table of Contents
Consolidated sales in fiscal 2011 were $26.53 billion, an increase of 38.5%, or $7.37 billion,
from fiscal 2010 consolidated sales of $19.16 billion. This increase was due to the combination of
growth through acquisitions and organic growth of 17.1%. EM sales of $15.07 billion in fiscal 2011
increased 37.4% over fiscal 2010 sales of $10.97 billion. The year-over-year comparisons were
impacted by acquisitions and the transfer of the TS Americas embedded business to EM Americas.
Organic sales increased 21.9% year over year and all three regions contributed with organic growth
of 14.2%, 34.4% and 19.5% in the Americas, EMEA and Asia, respectively, largely attributable to the
continued strong end demand across the technology industry. TS sales of $11.47 billion in fiscal
2011 increased 40.0% over fiscal 2010 sales of $8.19 billion. The year-over-year comparisons were
positively impacted by recent acquisitions, and partially offset by the transfer of the TS Americas
embedded business to EM and a divestiture. Organic sales increased 11.3% year over year driven by
the Americas and Asia regions with increased organic sales of 13.0% and 31.4%, respectively. In
the EMEA region, organic sales increased 1.7%. On a product level, year-over-year sales growth was
driven primarily by demand for storage and servers.
Fiscal 2010 Comparison to Fiscal 2009
The table below provides the comparison of reported fiscal 2010 and 2009 sales for the Company
and its operating groups to pro forma (or organic) sales as previously defined to allow readers to
better assess and understand the Company’s revenue performance by operating group.
| 2010 to 2009 | ||||||||||||||||
| Sales as | Acquisition | Pro Forma | Pro Forma | |||||||||||||
| Reported | Sales | Sales | Change | |||||||||||||
| (Dollars in millions) | ||||||||||||||||
|
EM
|
$ | 10,966.8 | $ | — | $ | 10,966.8 | 15.6 | % | ||||||||
|
TS
|
8,193.4 | 119.1 | 8,312.5 | 15.2 | ||||||||||||
|
|
||||||||||||||||
|
Fiscal 2010
|
$ | 19,160.2 | $ | 119.1 | $ | 19,279.3 | 15.5 | |||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
EM
|
$ | 9,192.8 | $ | 291.8 | $ | 9,484.6 | ||||||||||
|
TS
|
7,037.1 | 177.9 | 7,215.0 | |||||||||||||
|
|
||||||||||||||||
|
Fiscal 2009
|
$ | 16,229.9 | $ | 469.7 | $ | 16,699.6 | ||||||||||
|
|
||||||||||||||||
Consolidated sales in fiscal 2010 were $19.16 billion, up 18.1%, or $2.93 billion, over
consolidated sales of $16.23 billion in fiscal 2009. The continued growth throughout fiscal 2010
exceeded management’s expectations as the technology markets recovered faster than anticipated
following the rapid declines experienced in fiscal 2009. As mentioned earlier in this MD&A, fiscal
2010 included an extra week when compared with fiscal 2009, which management estimates added
approximately $400 million in sales. Acquisitions also positively impacted fiscal 2010 results as
organic growth was 15.5%.
EM sales of $10.97 billion increased 19.3%, or $1.77 billion, over sales of $9.19 billion in
fiscal 2009. Organic sales increased 15.6% year over year. All three regions contributed to the
year-over-year increase in EM sales led by the Asia region where sales increased 34.9%. The EMEA
region sales increased 20.6% year over year and organic revenue growth was 12.5%. Excluding the
translation impact of changes in foreign currency exchange rates, EM EMEA sales increased 19.9%
year over year and organic sales increased 11.8%. Sales increased 4.5% from prior year in the
Americas region, which had initially been slower to recover than the other EM regions; however, the
Americas sales increased 17.8% and 39.5% year over year in the third and fourth quarters,
respectively.
TS sales of $8.19 billion in fiscal 2010 were up 16.4%, or $1.16 billion, over sales of $7.04
billion in fiscal 2009. Organic sales increased 15.2% year over year. TS Asia sales increased
88.4% year over year and 59.8% on an organic sales basis as the Asia region was positively impacted
by investments and acquisitions made in China. Sales increased 15.2% and 2.5% year over year in TS
Americas and TS EMEA, respectively. Excluding the translation impact of changes in foreign
currency exchange rates, TS EMEA sales increased 1.8% year over year. The EMEA region continues to
lag in the economic recovery as compared with the other TS regions, although it did see robust
year-over-year organic growth of approximately 13.8% in the fourth quarter.
20
Table of Contents
Gross Profit and Gross Profit Margins
Consolidated gross profit in fiscal 2011 was $3.11 billion, an increase of $827.6 million, or
36.3%, from fiscal 2010 due primarily to strong organic sales growth and the increase in sales
related to acquisitions. Gross profit margin of 11.7% declined 19 basis points year over year due
primarily to the impact of businesses acquired, which had product lines with lower gross margins
than Avnet’s other product lines. EM gross profit margin increased 10 basis points where the
addition of the lower margin embedded business acquired from Bell and the embedded business
transferred from TS mostly offset the margin increase that occurred in the legacy EM business and
geographic mix shift. TS gross profit margin declined 52 basis points year over year primarily
attributable to the EMEA region and the impact of the integration of the Bell business, which has a
lower gross profit margin profile than the other TS EMEA product lines. Although the Bell business
has a lower gross profit margin profile due to its product mix, the Company expects to realize the
full impact of over $60 million in annualized synergies in the first quarter of fiscal 2012.
However, portions of the synergies have been realized incrementally as cost actions have been taken
during fiscal 2011.
Consolidated gross profit for fiscal 2010 was $2.28 billion, up $257.2 million, or 12.7%, over
the prior year primarily due to the increase in sales volume. Gross profit margin of 11.9%
declined 56 basis points over the prior year with all regions in each operating group experiencing
declines in margins. The gross profit margin at EM declined 63 basis points year over year
partially due to geographic mix changes as the Asia region, which has a lower gross profit margin
than the Americas or EMEA regions, represented 35% of EM sales in fiscal 2010 as compared with 31%
in fiscal 2009. In addition, the EMEA region gross profit margins had been slower to recover than
those in the Americas or Asia regions. The negative effects of the recession began later in the
EMEA region than in the Americas and, as a result, the region’s recovery also occurred later than
the other regions. However, the quarterly gross profit margin at EM improved sequentially during
the last three quarters of fiscal 2010 in all three regions with the largest improvement in the
EMEA region where gross profit margin increased over 100 basis points from the March to June
quarter. TS gross profit margin was down 54 basis points year over year due to the combination of
(i) geographic mix changes as the Asia region, which has lower gross profit margins than the
Americas or EMEA regions, represented 12% of TS sales as compared with 7% in fiscal 2009, (ii)
lower gross profit margins in Asia and (iii) lower gross profit margins in the Americas region.
Selling, General and Administrative Expenses
Selling, general and administrative expenses (“SG&A expenses”) were $2.10 billion in fiscal
2011, which was an increase of $481.5 million, or 29.7%, from fiscal 2010. The increase in SG&A
expenses was primarily a result of approximately $304 million of additional SG&A expenses
associated with acquisitions, $170 million of incremental costs necessary to support the 17.1%
year-over-year organic sales growth, net of incremental cost savings from integration activity and
the additional week of expenses in fiscal 2010 and $7 million due 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 2011, SG&A expenses were 7.9% of sales and 67.6% of gross profit as compared with 8.5%
and 71.0%, respectively, in fiscal 2010. This continued year-over-year improvement reflects the
operating leverage in the business model realized from recent revenue growth and effective expense
management.
SG&A expenses were $1.62 billion in fiscal 2010, an increase of $87.7 million, or 5.7%, as
compared with $1.53 billion in fiscal 2009. The increase in SG&A expenses was primarily
attributable to supporting the increased sales volume, an additional week in fiscal 2010 and
additional expenses associated with businesses acquired, partially offset by the impact of cost
reduction actions. The cost reduction actions taken during fiscal 2009, as described in further
detail below, were completed during the first quarter of fiscal 2010 and the full benefit of the
actions were realized beginning in the second quarter of fiscal 2010. SG&A expenses were 8.5% of
sales and 71.0% of gross profit in fiscal 2010 as compared with 9.4% of sales and 75.7% of gross
profit in fiscal 2009. The year-over-year improvement in these metrics is primarily the result of
effective cost management, including the impact of cost reduction actions taken during fiscal 2009,
as sales increased 18.1% year over year as compared with only a 5.7% increase in SG&A expenses.
Due to the decline in sales and gross profit margin that began in late fiscal 2008 and
accelerated further during fiscal 2009, the Company initiated significant cost reduction actions to
realign its expense structure with market conditions (see
Restructuring, Integration and Other
Charges
for a discussion of charges associated with the actions undertaken). In the third quarter
of fiscal 2008, the Company began to experience demand weakness and organic sales growth at both EM
and TS continued to slow through the first quarter of fiscal 2009. In the second quarter of fiscal
2009, the Company experienced continued sales deceleration in both operating groups, particularly
in November in the Asia region and in December in the Americas region. During the third quarter of
fiscal 2009, end demand in the EM business deteriorated even further, in particular in EM Americas
and EM EMEA, which have been the
21
Table of Contents
Company’s most profitable regions. As a result of the poor
market conditions through mid-March of fiscal 2009, the Company took actions to reduce costs
by approximately $200 million on an annualized basis and had expected such actions to be completed
by the end of the June quarter of fiscal 2009. However, based upon third quarter of fiscal 2009
results, the Company announced further actions to reduce annualized costs by an additional $25
million, bringing the aggregate annual cost reductions announced to approximately $225 million
since March 2008. As of the end of the fourth quarter of fiscal 2009, management estimated that
approximately $200 million in annualized cost savings had been achieved and the remaining cost
reduction actions were completed at the end of September 2009; therefore, the full benefit of the
annualized cost savings of $225 million were reflected in the December quarter of fiscal 2010. In
addition, the December quarter of 2010 included cost synergies of approximately $40 million as a
result of acquisition integration activities most of which were completed by the end of fiscal
2009.
Impairment Charges
During fiscal 2009, the Company recognized non-cash goodwill and intangible asset impairment
charges totaling $1.41 billion pre-tax, $1.38 billion after tax and $9.13 per share.
During the second quarter of fiscal 2009, due to a steady decline in the Company’s market
capitalization due primarily to the global economic downturn’s impact on the Company’s performance
and the turmoil in the equity markets, the Company determined an interim goodwill impairment test
was necessary and performed the interim test on all six of its reporting units as of December 27,
2008. Based on the test results, the Company determined that goodwill at four of its reporting
units was impaired. Accordingly, during the second quarter of fiscal 2009, the Company recognized
a non-cash goodwill impairment charge of $1.32 billion pre-tax, $1.28 billion after tax and $8.51
per share to write off all goodwill related to its EM Americas, EM Asia, TS EMEA and TS Asia
reporting units.
During the fourth quarter of fiscal 2009, the Company performed its annual goodwill impairment
test which indicated that three of its six reporting units, including EM Asia and TS EMEA,
continued to have fair values below their carrying values. As a result, the Company was required
to recognize the impairment of additional goodwill which arose subsequent to the second quarter of
fiscal 2009 in the EM Asia and TS EMEA reporting units. Of the non-cash goodwill impairment charges
of $62.3 million pre- and after tax and $0.41 per share recognized in the fourth quarter of fiscal
2009, $41.4 million related to the recently acquired business in Japan, which was assigned to the
EM Asia reporting unit. Accounting standards require goodwill from an acquisition to be assigned to
a reporting unit and also require goodwill to be tested on a reporting unit level, not by
individual acquisition. As noted above, the annual impairment analysis indicated that the fair
value of the EM Asia reporting unit continued to be below its carrying value. As a result, the
goodwill from the recent acquisition was required to be impaired. The remaining $20.8 million of
the impairment charges related to additional goodwill in the TS EMEA reporting unit primarily as a
result of final acquisition adjustments during the purchase price allocation period related to an
acquisition for which the goodwill had been fully impaired in the second quarter of fiscal 2009.
During fiscal 2009, the Company also evaluated the recoverability of its long-lived assets at
each of the reporting units where goodwill was deemed to be impaired. Based upon this evaluation,
the Company determined that certain of its amortizable intangible assets were impaired. As a
result, the Company recognized a non-cash intangible asset impairment charge of $31.4 million pre-
and after tax and $0.21 per share during the second quarter of fiscal 2009. In conjunction with the
annual goodwill impairment test, the Company again evaluated the recoverability of its long-lived
assets during the fourth quarter of fiscal 2009 and determined that no impairment had occurred.
The non-cash impairment charges had no impact on the Company’s compliance with debt covenants,
its cash flows or available liquidity, but did have a material impact on its consolidated financial
statements.
Restructuring, Integration and Other Charges
Fiscal 2011
During fiscal 2011, the Company recognized restructuring, integration and other charges of
$77.2 million pre-tax, $56.2 million after tax and $0.36 per share on a diluted basis associated
primarily with the integration of the acquired Bell business. Restructuring costs included $28.6
million pre-tax for severance and $17.3 million pre-tax 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 of $25.1 million pre-tax included
professional fees associated with legal and IT consulting, facility moving costs, 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 and employee benefits costs,
primarily of the acquired businesses’ personnel who were retained by Avnet for
22
Table of Contents
extended periods
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. Transaction costs of
$15.6 million pre-tax consisted primarily of professional fees for brokering the deals, due
diligence work and other legal costs. In addition, the Company recorded a reversal of $11.3
million pre-tax related to (i) the reversal of restructuring reserves established in prior years
that were deemed to be 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.
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/Pac region. Total
amounts utilized during fiscal 2011 consisted of $25.6 million in cash payments, $3.3 million in
non-cash asset write downs and $0.3 million related to adjustments to reserves and foreign currency
translation. As of July 2, 2011, management expects the majority of the remaining severance
reserves to be utilized by the end of fiscal 2012 and the remaining facility exit cost reserves to
be utilized by the end of fiscal 2015.
Fiscal 2010
During fiscal 2010, the Company recognized restructuring, integration and other charges of
$25.4 million pre-tax, $18.8 million after tax and $0.12 per share on a diluted basis. The Company
recognized restructuring charges of $16.0 million pre-tax for the remaining cost reduction actions
announced during fiscal 2009 which included severance costs, facility exit costs and other charges
related to contract termination costs and fixed asset write-downs. The Company also recognized
integration costs of $2.9 million pre-tax for professional fees, facility moving costs and travel,
meeting, marketing and communication costs that were incrementally incurred as a result of the
integration efforts of the recently acquired businesses, $6.5 million pre-tax for a value-added tax
exposure in Europe related to an audit of prior years, and $3.2 million pre-tax of other charges
including acquisition-related costs which would have been capitalized under the prior accounting
rules. The Company also recorded a credit of $3.2 million pre-tax to adjust reserves related to
prior restructuring activity which were determined to be no longer required.
Severance charges recorded in fiscal 2010 of $9.7 million related to personnel reductions of
over 150 employees in administrative, finance and sales functions in connection with the cost
reduction actions in all three regions. Facility exit costs of $3.7 million consisted of lease
liabilities and fixed asset write-downs associated with seven vacated facilities in the Americas,
one in EMEA and four in the Asia/Pac region. Other charges of $2.6 million consisted primarily of
contractual obligations with no on-going benefit to the Company. The total amounts utilized during
fiscal 2011 consisted of $1.1 million in cash payments, and $0.4 million related to adjustments to
reserves and foreign currency translation. As of July 2, 2011, the remaining reserves totaled $2.2
million, of which $0.2 million related to remaining facility exit cost and severance reserves which
are expected to be utilized by the end of fiscal 2013 and $2.0 million related to other contractual
obligations which are expected to be utilized by the end of fiscal 2012.
Fiscal 2009
In response to the decline in sales and gross profit margin due to weaker market conditions,
the Company initiated significant cost reduction actions during fiscal 2009 to realign its expense
structure with market conditions. As a result, the Company incurred restructuring, integration and
other charges totaling $99.3 million pre-tax, $65.3 million after tax and $0.43 per share during
fiscal 2009 related to the cost reductions as well as integration costs associated with recently
acquired businesses. Restructuring charges included severance of $50.8 million, facility
exit-costs of $29.6 million and other charges of $4.5 million related to contract termination
costs, fixed asset write-downs and other charges. The Company also recorded a reversal of $2.5
million to adjust estimated costs for severance, lease and other reserves related to prior year
restructuring activity which were deemed excessive and that reversal was credited to restructuring,
integration and other charges. Integration costs of $11.2 million included professional fees,
facility moving costs, travel, meeting, marketing and communication costs that were incrementally
incurred as a result of the acquisition integration efforts. Other items recorded to
restructuring, integration and other charges included a net credit of $1.2 million related to
acquisition adjustments for which the purchase allocation period had closed, a loss of $3.1 million
resulting from a decline in the market value of certain small investments that the Company
liquidated, and $3.8 million of incremental intangible asset amortization.
23
Table of Contents
Severance charges recorded in fiscal 2009 related to personnel reductions of approximately
1,900 employees in administrative, finance and sales functions in connection with the cost
reduction actions in all three regions of both operating groups with employee reductions of
approximately 1,400 in EM, 400 in TS and the remaining from centralized support functions. Exit
costs for vacated facilities related to 29 facilities in the Americas, 13 in EMEA and three in
Asia/Pac and consisted of reserves for remaining lease liabilities and the write-down of leasehold
improvements and other fixed assets. The total amounts utilized during fiscal 2011 consisted of
$9.4 million in cash payments and $5.4 million related to adjustments to reserves and foreign currency
translation. As of July 2, 2011, the remaining reserves totaled $5.9 million, of which $0.3 million
related to severance reserves which are expected to be utilized by
the end of fiscal 2012 and $5.6
million related to remaining facility exit cost reserves which are expected to be utilized by the
end of fiscal 2015.
Operating Income (Loss)
During fiscal 2011, the Company generated operating income of $930.0 million, an increase of
46.3% as compared with operating income of $635.6 million in fiscal 2010. The increase in operating
income was attributable to the impact of acquisitions and the growth in gross profit dollars
associated with the 17.1% organic sales growth. Consolidated operating income margin was 3.5% and
3.3% in fiscal 2011 and 2010, respectively. Both periods included restructuring, integration and
other charges as described in
Restructuring, Integration and Other Charges
above. Excluding these
charges, operating income for fiscal 2011 was $1.01 billion, or 3.8% of consolidated sales, as
compared with operating income of $661.0 million, or 3.5% of consolidated sales, for fiscal 2010.
EM operating income of $832.4 million increased 69.3% year over year and operating income margin
increased 105 basis points to 5.5%. All three regions within EM contributed, but the improvement
was primarily driven by the operating leverage in the EMEA region with its 31.9% year-over-year
revenue growth. TS operating income of $286.7 million increased 13.9% year over year while
operating income margin declined 57 basis points year over year to 2.5% due primarily to lower
gross profit margins in the EMEA region which includes lower operating margins of the acquired
businesses as compared with the other TS businesses. Corporate operating expenses were $112.0
million in fiscal 2011 as compared with $82.3 million in fiscal 2010 primarily due to net periodic
pension expense recognized in fiscal 2011 compared with pension income recognized in fiscal 2010.
Operating income for fiscal 2010 was $635.6 million, or 3.3% of consolidated sales, as
compared with an operating loss of $1.02 billion for fiscal 2009. Both periods included
restructuring, integration and other charges and the prior year included impairment charges as was
previously mentioned in this MD&A. Excluding these charges, operating income for fiscal 2010 was
$661.0 million, or 3.5% of consolidated sales, as compared with operating income of $491.5 million,
or 3.0% of consolidated sales, for fiscal 2009. EM operating income increased 38.7% to $491.6
million for fiscal 2010 and its operating income margin improved 62 basis points to 4.5% as
compared with fiscal 2009 as all three regions contributed to the improvement. EM’s operating
income margin improved year over year in each respective quarter of fiscal 2010 and ended the June
quarter at 5.6% which was the first time in two years that EM’s operating income margin reached
that level and was within the target range as established by management. TS operating income
increased 25.0% to $251.7 million for fiscal 2010 and operating income margin improved 21 basis
points to 3.1% as compared with fiscal 2009. TS continued to incur incremental expenses as it made
additional investments in Asia, particularly in China. Corporate operating expenses were $82.3
million in fiscal 2010 as compared with $64.5 million in fiscal 2009. The prior year corporate
operating expenses were unusually low due to the economic downturn and its impact on the accrual
for equity compensation which is based upon performance targets. Conversely, corporate expenses in
the fiscal 2010 are higher than typical primarily due to an increase in incentive compensation
driven by the Company’s financial results for fiscal 2010 which exceeded established targets and
were significantly higher as compared with fiscal 2009.
Interest Expense and Other Income (Expense), net
Interest expense for fiscal 2011 was $92.5 million, up $30.7 million, or 49.7% from interest
expense of $61.7 million in fiscal 2010. The year-over-year increase in interest expense was due
to an increase in debt used to fund the acquisitions of businesses and the increase in working
capital to support the significant growth in sales.
Interest expense for fiscal 2010 was $61.7 million, down $16.9 million, or 21.5%, from
interest expense of $78.7 million in fiscal 2009. During the first quarter of fiscal 2010, the
Company adopted an accounting standard which required retrospective application of the standard’s
provisions to prior years which resulted in recognizing incremental non-cash interest expense of
$12.2 million in addition to the previously reported interest expense of $66.5 million in fiscal
2009 (see footnote (a) to Item 6.
Selected Financial Data
in this Form 10-K). Excluding the
non-cash interest expense, the year-over-year decrease in interest expense was due primarily to the
elimination of interest on the Company’s $300.0 million 2% Convertible Senior Debentures
which were extinguished in March 2009. See
Financing Transactions
for further discussion of
the Company’s outstanding debt.
24
Table of Contents
Other income, net, was $10.7 million in fiscal 2011 as compared with other expense, net, of
$2.5 million in fiscal 2010 due primarily to foreign currency exchange gains compared with losses
in the prior year and higher interest income earned as compared with the prior year. Other income,
net, was $2.5 million in fiscal 2010 as compared with other expense, net, of $11.6 million in
fiscal 2009 primarily related to the negative impacts of foreign currency exchange losses.
Gain on Bargain Purchase and Other
During the first quarter of fiscal 2011, the Company acquired Unidux, a Japanese publicly
traded company, through a tender offer in which the Company obtained over 95% of the controlling
interest. 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.
Gain on Sale of Assets
During fiscal 2010 and 2009, the Company recognized a gain on sale of assets as a result of
certain earn-out provisions associated with the prior sale of the Company’s equity investment in
Calence LLC. The gain amounted to $8.8 million pre-tax, $5.4 million after tax and $0.03 per share
on a diluted basis in fiscal 2010 and $14.3 million pre-tax, $8.7 million after tax and $0.06 per
share in fiscal 2009.
Income Tax Provision
Avnet’s effective tax rate on income before income taxes was 23.2% in fiscal 2011 as compared
with 29.9% in fiscal 2010. The fiscal 2011 effective tax rate was primarily impacted by the release
of a tax reserve (valuation allowance) on certain deferred tax assets that were determined to be
realizable as discussed further below, and, to a lesser extent, net
favorable tax audit settlements, partially offset by changes to existing tax positions. Excluding the benefit related to the release of a tax
reserve, the effective tax rate for fiscal 2011 would have been 30.6%. Going forward, the Company
expects its fiscal year 2012 effective tax rate to be more in the range of this adjusted rate
rather than the effective tax rate experienced in fiscal 2011. The fiscal 2010 effective tax rate
was impacted primarily by changes to estimates for existing tax positions and net favorable tax
audit settlements, offset by a reserve established against certain deferred tax assets.
Prior to fiscal 2011, the Company had a full reserve against significant tax assets related to
a legal entity in EMEA due to, among several other factors, a history of losses in that entity.
Recently, the legal entity has been experiencing improved earnings which required the partial
release of the reserve to the extent the entity had taxable income during each of the first three
quarters of fiscal 2011 and, therefore, positively impacted (decreased) the Company’s effective tax
rate. During the fourth quarter of fiscal 2011, the Company determined a portion of the tax
reserve related to this entity was no longer required due to the expected continuation of improved
earnings in the future and, as a result, the Company’s effective tax rate was positively impacted
(decreased) upon the release of the tax reserves. The Company will continue to evaluate the need
for a reserve against the tax assets associated with this legal entity and may release additional
reserve in the future.
Avnet’s effective tax rate on income before income taxes was 29.9% in fiscal 2010 as compared
with an effective tax rate on the loss before taxes of 3.2% in fiscal 2009. The fiscal 2010
effective tax rate was impacted by changes to estimates for existing tax positions, net favorable
tax audit settlements, offset by a charge to establish a reserve against certain deferred tax
assets. The effective tax rate in fiscal 2009 was negatively impacted by the non-deductibility of
substantially all of the impairment charges and changes to existing tax positions, partially offset
by a net tax benefit of $21.7 million, or $0.14 per share, related primarily to the release of tax
reserves due to the settlement of certain tax audits in Europe. Excluding these items, the
effective tax rate for fiscal 2009 would have been 28.6%.
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 the jurisdictions in
which the Company does business and management’s evaluation of its ability to generate sufficient
taxable income to offset net operating loss carry-forwards as well as 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.
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Table of Contents
Net Income (Loss)
As a result of the factors described in the preceding sections of this MD&A, the Company’s net
income was $669.1 million, or $4.34 per share on a diluted basis, as compared with net income of
$410.4 million, or $2.68 per share on a diluted basis, in fiscal 2010 and a net loss of $1.13
billion, or $7.49 per share, in fiscal 2009. Fiscal 2011, 2010 and 2009 results were impacted by
certain items as presented in the following tables:
| Year Ended July 2, 2011 | ||||||||||||||||
| Operating | Pre-tax | Net | Diluted | |||||||||||||
| Income (Loss) | Income (Loss) | Income (Loss) | EPS | |||||||||||||
| (Thousands, except per share data) | ||||||||||||||||
|
Restructuring, integration and other charges
|
$ | (77,176 | ) | $ | (77,176 | ) | $ | (56,169 | ) | $ | (0.36 | ) | ||||
|
Gain on bargain purchase and other
|
— | 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 | ||||||
|
|
||||||||||||||||
| Year Ended July 3, 2010 | ||||||||||||||||
| Operating | Pre-tax | Net | Diluted | |||||||||||||
| Income (Loss) | Income (Loss) | Income (Loss) | EPS * | |||||||||||||
| (Thousands, except per share data) | ||||||||||||||||
|
Restructuring, integration and other charges
|
$ | (25,419 | ) | $ | (25,419 | ) | $ | (18,789 | ) | $ | (0.12 | ) | ||||
|
Gain on sale of assets
|
— | 8,751 | 5,370 | 0.03 | ||||||||||||
|
Net increase in tax reserves
|
— | — | (842 | ) | (0.01 | ) | ||||||||||
|
|
||||||||||||||||
|
Total
|
$ | (25,419 | ) | $ | (16,668 | ) | $ | (14,261 | ) | $ | (0.09 | ) | ||||
|
|
||||||||||||||||
| * |
EPS does not foot due to rounding.
|
| Year Ended June 27, 2009 | ||||||||||||||||
| Operating | Pre-tax | Net | ||||||||||||||
| Income (Loss) | Income (Loss) | Income (Loss) | EPS | |||||||||||||
| (Thousands, except per share data) | ||||||||||||||||
|
Impairment charges
|
$ | (1,411,127 | ) | $ | (1,411,127 | ) | $ | (1,376,983 | ) | $ | (9.13 | ) | ||||
|
Restructuring, integration and other charges
|
(99,342 | ) | (99,342 | ) | (65,310 | ) | (0.43 | ) | ||||||||
|
Retrospective application of accounting standard
|
291 | (11,894 | ) | (7,250 | ) | (0.05 | ) | |||||||||
|
Gain on sale of assets
|
— | 14,318 | 8,727 | 0.06 | ||||||||||||
|
Net reduction in tax reserves
|
— | — | 21,672 | 0.14 | ||||||||||||
|
|
||||||||||||||||
|
Total
|
$ | (1,510,178 | ) | $ | (1,508,045 | ) | $ | (1,419,144 | ) | $ | (9.41 | ) | ||||
|
|
||||||||||||||||
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:
26
Table of Contents
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 deteriorate,
management would evaluate whether additional allowances and corresponding charges to the
consolidated statement of operations 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 early 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 estimated.
Accounting for Income Taxes
Management 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
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.
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 determining the Company’s effective tax rate, management considers current tax regulations
in the numerous jurisdictions in which it operates, and requires management’s 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.
27
Table of Contents
Additionally, in assessing the Company’s 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 2011 and 2010, the Company performed its annual goodwill impairment test and
determined there was no goodwill impairment and there are no reporting units with material goodwill
that are at risk of failing “step 1” of the goodwill impairment test. During fiscal 2009, the
Company performed an interim goodwill impairment test and recognized goodwill and intangible asset
impairments. See
Impairment Charges
in this MD&A for further discussion of the Company’s
evaluation of goodwill impairment in fiscal 2009.
Contingencies and Litigation
From time to time, the Company may become a party to, or otherwise involved in, pending and
threatened litigation, tax, environmental and other matters in the ordinary course of conducting
its business. Management does not anticipate that any contingent matters will have a material
adverse impact on the Company’s financial condition, liquidity or results of operations.
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.
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.
Liquidity and Capital Resources
Cash Flows
Cash Flows from Operating Activities
The Company generated $278.1 million of cash from operating activities in fiscal 2011 as
compared with cash usage of $30.4 million in fiscal 2010. These results are comprised of: (1) cash
flow generated from net income excluding non-cash and other reconciling items, which includes the
add-back 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
(2) cash flow used for working capital, excluding cash and cash equivalents. Cash used for working
capital in 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 payables of $165.2 million.
For EM, inventory and receivables grew year over year due to the strong growth in sales. For TS,
growth in receivables was partially offset by an increase in accounts payables. Net days
outstanding, in particular, receivable days, are above pre-recession levels as there has not been
any significant change in terms provided to customers.
During fiscal 2010, the Company used $30.4 million of cash from operating activities as
compared with cash generated in fiscal 2009 of $1.1 billion. Cash used for working capital during
fiscal 2010 consisted of growth in accounts receivable and inventory of $1.07 billion and $459.9
million, respectively, partially offset by an increase in accounts payable of $963.3 million. For
fiscal 2010, sales increased 18.1%; however, the Company used only $30.4 million of cash from
operating activities to fund that growth as a result of the significant improvement in working
capital velocity which increased to a record
7.8 times. Cash generated from working capital during fiscal 2009 was the result of a $709.9
million reduction in receivables, a $483.5 million reduction in inventory; both of which were
partially offset by a $375.5 million reduction in accounts payable.
28
Table of Contents
Cash Flows from Financing Activities
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 bank credit facilities and other debt.
During fiscal 2010, the Company received proceeds of $291.9 million from the issuance of
notes, net of repayments for bank and other debt. In June 2010, the Company issued $300.0 million
5.875% Notes due June 2020 and received proceeds of $296.5 million, net of discount and
underwriting fees.
During fiscal 2009, the Company utilized cash of $406.8 million related to net repayments of
notes and bank credit facilities, $300 million of which related to the extinguishment of the 2%
Convertible Senior Debentures due March 15, 2034 (the “Debentures”). In March 2009, $298.1 million
of the Debentures were put back to the Company and the remaining $1.9 million was repaid in April
2009. As a result of the substantial cash generation from operating activities during fiscal 2009,
the Company was able to use cash on hand to settle the $300 million of Debentures’ principal plus
accrued interest.
Other financing activities, net, in fiscal 2011, 2010 and 2009 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 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.
During fiscal 2010, the Company used $112.4 million of cash for investing activities, of which
$69.3 million related to acquisitions and investments. The Company also received proceeds of $11.8
million related to earn-out provisions from the prior sale of an equity method investment as well
as the sale of a small cost method investment. The Company used $66.9 million for capital
expenditures related to building and leasehold improvements, system development costs, computer
hardware and software and received $12.0 million in proceeds primarily related to the sale of
properties.
The Company used $314.9 million of cash related to acquisitions during fiscal 2009. The
Company also received $14.3 million in proceeds related to earn-out provisions associated with the
prior sale of the Company’s equity investment (see
Results of Operations — Gain on Sale of
Assets).
In addition, the Company utilized $110.2 million of cash for capital expenditures related
to system development costs, computer hardware and software as well as expenditures related to
warehouse construction costs.
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
July 2, 2011, refer to Note 7 to the consolidated financial statements appearing in Item 15 of this
Report.
29
Table of Contents
The following table summarizes the Company’s capital structure as of the end of fiscal 2011
with a comparison with the end of fiscal 2010:
| July 2, | % of Total | July 3, | % of Total | |||||||||||||
| 2011 | Capitalization | 2010 | Capitalization | |||||||||||||
| (Dollars in thousands) | ||||||||||||||||
|
Short-term debt
|
$ | 243,079 | 4.4% | $ | 36,549 | 0.8% | ||||||||||
|
Long-term debt
|
1,273,509 | 22.8 | 1,243,681 | 29.0 | ||||||||||||
|
|
||||||||||||||||
|
Total debt
|
1,516,588 | 27.2 | 1,280,230 | 29.8 | ||||||||||||
|
Shareholders’ equity
|
4,056,070 | 72.8 | 3,009,117 | 70.2 | ||||||||||||
|
|
||||||||||||||||
|
Total capitalization
|
$ | 5,572,658 | 100.0 | $ | 4,289,347 | 100.0 | ||||||||||
|
|
||||||||||||||||
Financing Transactions
The Company has a five-year $500.0 million unsecured revolving credit facility (the “Credit
Agreement”) with a syndicate of banks that expires in September 2012. Under the Credit Agreement,
the Company may elect from various interest rate options, currencies and maturities. As of the end
of fiscal 2011, there were $122.1 million in borrowings outstanding under the Credit Agreement
included in “other long-term debt” in the consolidated financial statements. In addition, there
were $16.6 million in letters of credit issued under the Credit Agreement which represent a
utilization of the Credit Agreement capacity but are not recorded in the consolidated balance sheet
as the letters of credit are not debt. As of the end of fiscal 2010, there were $93.7 million in
borrowings outstanding and $8.6 million in letters of credit issued under the Credit Agreement.
The Company has an accounts receivable securitization program (the “Securitization Program”)
with a group of financial institutions that allows the Company to sell, on a revolving basis, an
undivided interest of up to $600.0 million ($450.0 million prior to the amendment in August 2010)
in eligible receivables while retaining a subordinated interest in a portion of the receivables.
The Securitization Program does not qualify for sale accounting and has a one year term that
expires at the end of August 2011 which is expected to be renewed for another year on comparable
terms. There were $160.0 million in borrowings outstanding under the Securitization Program at July
2, 2011 and no borrowings outstanding at July 3, 2010. Interest on borrowings is calculated using
a base rate or a commercial paper rate plus a spread of 0.425%. The facility fee is 0.50%.
As a result of acquisitions during fiscal 2011, the Company acquired debt of $420.3 million,
of which $211.9 million was repaid (including associated fees) at the acquisition dates. As of
July 2, 2011, the outstanding balances associated with the acquired debt and credit facilities
consisted of $16.6 million in bank credit facilities and other debt primarily used to support the
acquired foreign operations.
Notes outstanding as of the end of fiscal 2011 consisted of:
| • |
$300.0 million of 5.875% Notes due March 15, 2014
|
| • |
$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
|
The Company assumed 3.75% Notes due March 5, 2024 in the Bell acquisition which had a fair
value of $110.0 million. Prior to the Bell acquisition, the 3.75% Notes were convertible into Bell
common stock; however, as a result of the acquisition, the debt was no longer convertible into
shares. Under the terms of the 3.75% Notes, the Company could have redeemed some or all of the
3.75% Notes for cash anytime on or after March 5, 2011 and the note holders could have required the
Company to purchase for cash some or all of the 3.75% Notes on March 5, 2011 March 5, 2014 or March
5, 2019 at a redemption price equal to 100% of the principal amount plus interest. During the
first quarter of fiscal 2011, the Company issued a tender offer for the 3.75% Notes for which
approximately $5.2 million was tendered and paid in September 2010. During the third quarter of
fiscal 2011, the note holders tendered substantially all of the remaining notes for which $104.4
million was paid in March 2011.
In addition to its primary financing arrangements, the Company has 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 Europe, Asia and Canada. Avnet generally
guarantees its subsidiaries’ debt under these facilities.
30
Table of Contents
Covenants and Conditions
The Securitization Program discussed previously requires the Company to maintain certain
minimum interest coverage and leverage ratios as defined in the securitization agreement in order
to continue utilizing the Securitization Program. The Securitization 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 Securitization Program include the Company’s ongoing profitability and various other
economic, market and industry factors. Management does not believe that the covenants under the
Securitization 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 Securitization
Program at July 2, 2011.
The Credit Agreement discussed in
Financing Transactions
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, as defined in the Credit Agreement. Management does not believe that the covenants
in the Credit Agreement 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 Agreement as
of July 2, 2011.
See
Liquidity
below for further discussion of the Company’s availability under these various
facilities.
Liquidity
The Company had total borrowing capacity of $1.1 billion at July 2, 2011 under the Credit
Agreement and the Securitization Program. There were $122.1 million in borrowings outstanding and
$16.6 million in letters of credit issued under the Credit Agreement and $160.0 million outstanding
under the Securitization Program resulting in $801.3 million of net availability at the end of
fiscal 2011. During fiscal 2011, the Company had an average daily balance outstanding under the
Credit Agreement of $142.4 million and $405.4 million under the Securitization Program. During
fiscal 2010, the Company had an average daily balance outstanding under the Credit Agreement of
$92.7 million. The Company had no borrowings outstanding under the Securitization Program during
fiscal 2010.
The Company had cash and cash equivalents of $675.3 million as of July 2, 2011, of which
$613.2 million was held outside the U.S. As of July 3, 2010, the Company had cash and cash
equivalents of $1.09 billion, of which $507.9 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 on-going working capital, capital
expenditure needs and to support acquisitions. These balances are currently expected to be
permanently reinvested outside the U.S. If these funds were needed for general corporate use 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 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 2011, the Company utilized $691.0 million of cash, net of cash acquired, for
acquisitions, which included repayments of certain debt assumed in the acquisitions. The Company
assumed a total of $420.3 million of debt as a result of the
acquisitions and repaid $211.9 million
of assumed debt (including associated fees) at the acquisition dates. The Company has been making
and expects to continue to make strategic investments through acquisition activity to the extent
the investments strengthen Avnet’s competitive position and meet management’s return on capital
thresholds.
In addition to continuing to make investments in acquisitions, the Company may repurchase up
to an aggregate of $500 million of shares of the Company’s common stock through a share repurchase
program approved by the Board of Directors in August 2011. 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.
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. However, during fiscal 2011, revenue was up 38.5% year over year, yet
the Company generated $278.1 million in cash from operations as a result of significant growth in
operating income which was in excess of cash required for working capital purposes. 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.
31
Table of Contents
The following table highlights the Company’s liquidity and related ratios for the past two
fiscal years:
COMPARATIVE ANALYSIS — LIQUIDITY
| Years Ended | ||||||||||||
| July 2, | July 3, | Percentage | ||||||||||
| 2011 | 2010 | Change | ||||||||||
| (Dollars in millions) | ||||||||||||
|
Current Assets
|
$ | 8,227.2 | $ | 6,630.2 | 24.1 | % | ||||||
|
Quick Assets
|
5,439.6 | 4,666.6 | 16.6 | |||||||||
|
Current Liabilities
|
4,477.7 | 3,439.6 | 30.2 | |||||||||
|
Working Capital
(1)
|
3,749.5 | 3,190.6 | 17.5 | |||||||||
|
Total Debt
|
1,516.6 | 1,280.2 | 18.5 | |||||||||
|
Total Capital (total debt plus total shareholders’ equity)
|
5,572.7 | 4,289.3 | 29.9 | |||||||||
|
Quick Ratio
|
1.2:1 | 1.4:1 | ||||||||||
|
Working Capital Ratio
|
1.8:1 | 1.9:1 | ||||||||||
|
Debt to Total Capital
|
27.2 | % | 29.8 | % | ||||||||
| (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
16.6% from July 3, 2010 to July 2, 2011 primarily due to the increase in receivables resulting from
the increased volume of business associated with acquisitions since the prior fiscal year end,
significant organic sales growth and the impact of the change in foreign currency exchange spot
rates at July 2, 2011 as compared with July 3, 2010. Current assets increased 24.1% due to the
increase in receivables and inventory, also a result of the recent acquisitions, the impact of the
change in foreign currency exchange spot rates and the double-digit growth in sales. Current
liabilities increased 30.2% primarily due to the increase in short-term borrowings used to support
the growth in sales. In addition, current liabilities increased due to growth in accounts payable,
which was impacted by acquisitions and the exchange rate changes mentioned previously. As a result
of the factors noted above, total working capital increased by 17.5% during fiscal 2011. Total
debt increased by 18.5%, primarily due to the increase in short-term borrowings, total capital
increased 29.9% and the debt to capital ratio decreased as compared with July 3, 2010 to 27.2%.
Long-Term Contractual Obligations
The Company has the following contractual obligations outstanding as of July 2, 2011 (in
millions):
| Due in Less | Due in | Due in | Due After | |||||||||||||||||
| Total | Than 1 Year | 1-3 Years | 4-5 Years | 5 Years | ||||||||||||||||
|
Long-term debt, including amounts due within one year
(1)
|
$ | 1,519.6 | $ | 243.1 | $ | 426.2 | $ | 250.3 | $ | 600.0 | ||||||||||
|
Interest expense on long-term notes
(2)
|
$ | 372.5 | $ | 70.3 | $ | 135.4 | $ | 92.8 | $ | 74.0 | ||||||||||
|
Operating leases
|
$ | 304.6 | $ | 92.4 | $ | 120.3 | $ | 49.5 | $ | 42.4 | ||||||||||
| (1) |
Excludes discount on long-term notes.
|
|
| (2) |
Represents interest expense due on long-term notes with
fixed interest rates.
|
At July 2, 2011, the Company had a liability for income tax contingencies of $175.2 million,
which is not included in the above table. Cash payments associated with the remaining liability
cannot reasonably be estimated as it is difficult to estimate the timing and amount of tax
settlements. The Company does not currently have any material commitments for capital expenditures.
32
Table of Contents
| 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
July 2, 2011 (dollars in millions):
| Fiscal Year | ||||||||||||||||||||||||||||
| 2012 | 2013 | 2014 | 2015 | 2016 | Thereafter | Total | ||||||||||||||||||||||
|
Liabilities:
|
||||||||||||||||||||||||||||
|
Fixed rate debt (1)
|
$ | 1.2 | $ | 1.2 | $ | 301.6 | $ | 0.3 | $ | 250.0 | $ | 600.0 | $ | 1,154.3 | ||||||||||||||
|
Floating rate debt
|
$ | 241.9 | $ | 123.4 | $ | — | $ | — | $ | — | $ | — | $ | 365.3 | ||||||||||||||
| (1) |
Excludes discounts on long-term notes.
|
The following table sets forth the carrying value and fair value of the Company’s debt at July
2, 2011 (dollars in millions):
| Carrying Value at | Fair Value at | Carrying Value at | Fair Value at | |||||||||||||
| July 2, 2011 | July 2, 2011 | July 3, 2010 | July 3, 2010 | |||||||||||||
|
Liabilities:
|
||||||||||||||||
|
Fixed rate debt (1)
|
$ | 1,154.3 | $ | 1,261.1 | $ | 1,154.3 | $ | 1,220.7 | ||||||||
|
Average interest rate
|
6.1 | % | 6.1 | % | ||||||||||||
|
Floating rate debt
|
$ | 365.3 | $ | 365.3 | $ | 129.5 | $ | 129.5 | ||||||||
|
Average interest rate
|
2.2 | % | 1.5 | % | ||||||||||||
| (1) |
Excludes discounts on long-term notes.
|
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 July 2, 2011
would result in an increase or decrease of approximately $25.7 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.
33
Table of Contents
| 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 2011, 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
July 2, 2011. In making this assessment, management used the framework established in
Internal
Control — Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway
Commission and concluded that the Company maintained effective internal control over financial
reporting as of July 2, 2011.
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 July 2, 2011, as
stated in its audit report which is included herein.
| Item 9B. |
Other Information
|
Not applicable.
34
Table of Contents
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 4, 2011.
| 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 4, 2011.
| 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 4, 2011.
| 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 4, 2011.
| 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 4, 2011.
35
Table of Contents
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:
|
||||
|
|
||||
| 38 | ||||
|
|
||||
|
Avnet, Inc. and Subsidiaries Consolidated Financial Statements:
|
||||
|
|
||||
| 39 | ||||
|
|
||||
| 40 | ||||
|
|
||||
| 41 | ||||
|
|
||||
| 42 | ||||
|
|
||||
| 43 | ||||
|
|
||||
|
2. Financial Statement Schedule:
|
||||
|
|
||||
| 73 | ||||
|
|
||||
|
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 — The exhibit index for this Report can be found beginning on page
|
74 | |||
|
|
||||
36
Table of Contents
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 12, 2011
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below hereby
authorizes and appoints each of Richard Hamada and Raymond Sadowski 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 12, 2011.
| Signature | Title | |
|
|
||
|
/s/ RICHARD HAMADA
|
Chief Executive Officer and Director
(Principal Executive Officer) |
|
|
|
||
|
/s/ ROY VALLEE
|
Chairman of the Board and Director | |
|
|
||
|
/s/ ELEANOR BAUM
|
Director | |
|
|
||
|
/s/ J. VERONICA BIGGINS
|
Director | |
|
|
||
|
/s/ EHUD HOUMINER
|
Director | |
|
|
||
|
/s/ JAMES A. LAWRENCE
|
Director | |
|
|
||
|
/s/ FRANK R. NOONAN
|
Director | |
|
|
||
|
/s/ RAY M. ROBINSON
|
Director | |
|
|
||
|
/s/ WILLIAM H. SCHUMANN, III
|
Director | |
|
|
||
|
/s/ WILLIAM P. SULLIVAN
|
Director | |
|
|
||
|
/s/ GARY L. TOOKER
|
Director | |
|
|
||
|
/s/ RAYMOND SADOWSKI
|
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer) |
37
Table of Contents
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Avnet, Inc.:
Avnet, Inc.:
We have audited the accompanying consolidated balance sheets of Avnet, Inc. and subsidiaries (the
Company) as of July 2, 2011 and July 3, 2010, and the related consolidated statements of
operations, shareholders’ equity, and cash flows for each of the years in the three-year period
ended July 2, 2011. 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
July 2, 2011, as listed in the accompanying index. We also have audited the Company’s internal
control over financial reporting as of July 2, 2011, based on 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 July 2, 2011 and
July 3, 2010, and the results of their operations and their cash flows for each of the years in the
three-year period ended July 2, 2011, 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 July 2, 2011, when considered in relation to the basic consolidated
financial statement 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 July 2, 2011, based on criteria
established in
Internal Control — Integrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
As discussed in note 1 to the consolidated financial statements, effective June 28, 2009, the
Company adopted FASB ASC 470-20,
Debt with Conversion and Other Options
(formerly FSP APB 14-1).
/s/ KPMG LLP
Phoenix, Arizona
August 11, 2011
August 11, 2011
38
Table of Contents
AVNET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| July 2, | July 3, | |||||||
| 2011 | 2010 | |||||||
| (Thousands, except share amounts) | ||||||||
|
ASSETS
|
||||||||
|
Current assets:
|
||||||||
|
Cash and cash equivalents
|
$ | 675,334 | $ | 1,092,102 | ||||
|
Receivables, less allowances of $107,739 and $81,197, respectively (Note 3)
|
4,764,293 | 3,574,541 | ||||||
|
Inventories
|
2,596,470 | 1,812,766 | ||||||
|
Prepaid and other current assets
|
191,110 | 150,759 | ||||||
|
|
||||||||
|
Total current assets
|
8,227,207 | 6,630,168 | ||||||
|
Property, plant and equipment, net (Note 5)
|
419,173 | 302,583 | ||||||
|
Goodwill (Notes 2 and 6)
|
885,072 | 566,309 | ||||||
|
Other assets
|
374,117 | 283,322 | ||||||
|
|
||||||||
|
Total assets
|
$ | 9,905,569 | $ | 7,782,382 | ||||
|
|
||||||||
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
||||||||
|
Current liabilities:
|
||||||||
|
Borrowings due within one year (Note 7)
|
$ | 243,079 | $ | 36,549 | ||||
|
Accounts payable
|
3,561,633 | 2,862,290 | ||||||
|
Accrued expenses and other (Note 8)
|
673,016 | 540,776 | ||||||
|
|
||||||||
|
Total current liabilities
|
4,477,728 | 3,439,615 | ||||||
|
Long-term debt (Note 7)
|
1,273,509 | 1,243,681 | ||||||
|
Other long-term liabilities (Notes 9 and 10)
|
98,262 | 89,969 | ||||||
|
|
||||||||
|
Total liabilities
|
5,849,499 | 4,773,265 | ||||||
|
|
||||||||
|
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 152,835,000
shares and 151,874 ,000 shares, respectively
|
152,835 | 151,874 | ||||||
|
Additional paid-in capital
|
1,233,209 | 1,206,132 | ||||||
|
Retained earnings
|
2,293,510 | 1,624,441 | ||||||
|
Accumulated other comprehensive income (Note 4)
|
377,211 | 27,362 | ||||||
|
Treasury stock at cost, 37,802 shares and 37,769 shares, respectively
|
(695 | ) | (692 | ) | ||||
|
|
||||||||
|
Total shareholders’ equity
|
4,056,070 | 3,009,117 | ||||||
|
|
||||||||
|
Total liabilities and shareholders’ equity
|
$ | 9,905,569 | $ | 7,782,382 | ||||
|
|
||||||||
See notes to consolidated financial statements
39
Table of Contents
AVNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
| Years Ended | ||||||||||||
| July 2, | July 3, | June 27, | ||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| (Thousands, except share amounts) | ||||||||||||
|
Sales
|
$ | 26,534,413 | $ | 19,160,172 | $ | 16,229,896 | ||||||
|
Cost of sales
|
23,426,608 | 16,879,955 | 14,206,903 | |||||||||
|
|
||||||||||||
|
Gross profit
|
3,107,805 | 2,280,217 | 2,022,993 | |||||||||
|
Selling, general and administrative expenses
|
2,100,650 | 1,619,198 | 1,531,522 | |||||||||
|
Impairment charges (Note 6)
|
— | — | 1,411,127 | |||||||||
|
Restructuring, integration and other charges (Note 17)
|
77,176 | 25,419 | 99,342 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Operating income (loss)
|
929,979 | 635,600 | (1,018,998 | ) | ||||||||
|
Other income (expense), net
|
10,724 | 2,480 | (11,622 | ) | ||||||||
|
Interest expense
|
(92,452 | ) | (61,748 | ) | (78,666 | ) | ||||||
|
Gain on bargain purchase and other (Note 2)
|
22,715 | — | — | |||||||||
|
Gain on sale of assets (Note 2)
|
— | 8,751 | 14,318 | |||||||||
|
|
||||||||||||
|
Income (loss) before income taxes
|
870,966 | 585,083 | (1,094,968 | ) | ||||||||
|
Income tax provision (Note 9)
|
201,897 | 174,713 | 34,744 | |||||||||
|
|
||||||||||||
|
Net income (loss)
|
$ | 669,069 | $ | 410,370 | $ | (1,129,712 | ) | |||||
|
|
||||||||||||
|
|
||||||||||||
|
Net earnings (loss) per share (Note 14):
|
||||||||||||
|
Basic
|
$ | 4.39 | $ | 2.71 | $ | (7.49 | ) (1) | |||||
|
|
||||||||||||
|
Diluted
|
$ | 4.34 | $ | 2.68 | $ | (7.49 | ) (1) | |||||
|
|
||||||||||||
|
|
||||||||||||
|
Shares used to compute earnings (loss) per share (Note 14):
|
||||||||||||
|
Basic
|
152,481 | 151,629 | 150,898 | |||||||||
|
|
||||||||||||
|
Diluted
|
154,337 | 153,093 | 150,898 | |||||||||
|
|
||||||||||||
| (1) |
As adjusted for the retrospective application of an accounting standard. See Note 1
to the consolidated financial statements.
|
See notes to consolidated financial statements
40
Table of Contents
AVNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Years Ended July 2, 2011, July 3, 2010 and June 27, 2009
Years Ended July 2, 2011, July 3, 2010 and June 27, 2009
| Accumulated | ||||||||||||||||||||||||
| Additional | Other | Total | ||||||||||||||||||||||
| Common | Paid-In | Retained | Comprehensive | Treasury | Shareholders’ | |||||||||||||||||||
| Stock | Capital | Earnings | Income | Stock | Equity | |||||||||||||||||||
| (Thousands) | ||||||||||||||||||||||||
|
Balance, June 28, 2008 (as adjusted —see Note 1)
|
150,417 | $ | 1,166,042 | $ | 2,343,783 | $ | 482,178 | $ | (479 | ) | $ | 4,141,941 | ||||||||||||
|
Net loss
|
— | — | (1,129,712 | ) | — | — | (1,129,712 | ) | ||||||||||||||||
|
Translation adjustments (Note 4)
|
— | — | — | (237,903 | ) | — | (237,903 | ) | ||||||||||||||||
|
Pension liability adjustment, net of tax of $16,767
(Notes 4, 10 and 15)
|
— | — | — | (26,181 | ) | — | (26,181 | ) | ||||||||||||||||
|
|
||||||||||||||||||||||||
|
Comprehensive loss (Note 4)
|
(1,393,796 | ) | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Stock option and incentive programs, including
related tax benefits of $653
|
682 | 12,482 | — | — | (452 | ) | 12,712 | |||||||||||||||||
|
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Balance, June 27, 2009
|
151,099 | 1,178,524 | 1,214,071 | 218,094 | (931 | ) | 2,760,857 | |||||||||||||||||
|
Net income
|
— | — | 410,370 | — | — | 410,370 | ||||||||||||||||||
|
Translation adjustments (Note 4)
|
— | — | — | (159,517 | ) | — | (159,517 | ) | ||||||||||||||||
|
Pension liability adjustment, net of tax of $19,287
(Notes 4, 10 and 15)
|
— | — | — | (31,215 | ) | — | (31,215 | ) | ||||||||||||||||
|
|
||||||||||||||||||||||||
|
Comprehensive income (Note 4)
|
219,638 | |||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Stock option and incentive programs, including
related tax benefits of $2,100
|
775 | 27,608 | — | — | 239 | 28,622 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Balance, July 3, 2010
|
151,874 | 1,206,132 | 1,624,441 | 27,362 | (692 | ) | 3,009,117 | |||||||||||||||||
|
Net income
|
— | — | 669,069 | — | — | 669,069 | ||||||||||||||||||
|
Translation adjustments (Note 4)
|
— | — | — | 329,884 | — | 329,884 | ||||||||||||||||||
|
Pension liability adjustment, net of tax of $12,022
(Notes 4, 10 and 15)
|
— | — | — | 19,965 | — | 19,965 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Comprehensive income (Note 4)
|
1,018,918 | |||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Stock option and incentive programs, including
related tax benefits of $4,689
|
961 | 27,077 | — | — | (3 | ) | 28,035 | |||||||||||||||||
|
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Balance, July 2, 2011
|
152,835 | $ | 1,233,209 | $ | 2,293,510 | $ | 377,211 | $ | (695 | ) | $ | 4,056,070 | ||||||||||||
|
|
||||||||||||||||||||||||
See notes to consolidated financial statements
41
Table of Contents
AVNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Years Ended | ||||||||||||
| July 2, | July 3, | June 27, | ||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| (Thousands) | ||||||||||||
|
Cash flows from operating activities:
|
||||||||||||
|
Net income (loss)
|
$ | 669,069 | $ | 410,370 | $ | (1,129,712 | ) | |||||
|
Non-cash and other reconciling items:
|
||||||||||||
|
Depreciation and amortization
|
81,389 | 60,643 | 65,781 | |||||||||
|
Deferred income taxes (Note 9)
|
15,966 | 46,424 | (92,787 | ) | ||||||||
|
Stock-based compensation (Note 12)
|
28,931 | 28,363 | 18,269 | |||||||||
|
Gain on sale of assets (Note 2)
|
— | (8,751 | ) | (14,318 | ) | |||||||
|
Gain on bargain purchase and other (Note 2)
|
(22,715 | ) | — | — | ||||||||
|
Impairment charges (Note 6)
|
— | — | 1,411,127 | |||||||||
|
Other, net (Note 15)
|
56,846 | 15,385 | 38,414 | |||||||||
|
Changes in (net of effects from businesses acquired):
|
||||||||||||
|
Receivables
|
(421,457 | ) | (1,070,302 | ) | 709,908 | |||||||
|
Inventories
|
(321,939 | ) | (459,917 | ) | 483,453 | |||||||
|
Accounts payable
|
165,185 | 963,332 | (375,509 | ) | ||||||||
|
Accrued expenses and other, net
|
26,804 | (15,962 | ) | 3,409 | ||||||||
|
|
||||||||||||
|
Net cash flows provided by (used for) operating activities
|
278,079 | (30,415 | ) | 1,118,035 | ||||||||
|
|
||||||||||||
|
Cash flows from financing activities:
|
||||||||||||
|
Borrowings under accounts receivable securitization program, net
(Note 7)
|
160,000 | — | — | |||||||||
|
Issuance of
notes in a public offering, net of issuance costs (Note 7)
|
— | 296,469 | — | |||||||||
|
Repayment of notes (Note 7)
|
(109,600 | ) | — | (300,000 | ) | |||||||
|
Proceeds from (repayments of) bank debt, net (Note 7)
|
1,644 | (1,732 | ) | (90,444 | ) | |||||||
|
Proceeds from (repayments of) other debt, net (Note 7)
|
7,238 | (2,803 | ) | (16,361 | ) | |||||||
|
Other, net (Note 12)
|
3,930 | 4,838 | 1,564 | |||||||||
|
|
||||||||||||
|
Net cash flows provided by (used for) financing activities
|
63,212 | 296,772 | (405,241 | ) | ||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Cash flows from investing activities:
|
||||||||||||
|
Purchases of property, plant and equipment
|
(148,707 | ) | (66,888 | ) | (110,219 | ) | ||||||
|
Cash proceeds from sales of property, plant and equipment
|
10,621 | 12,015 | 13,157 | |||||||||
|
Acquisitions of operations and investments, net of cash acquired (Note 2)
|
(690,997 | ) | (69,333 | ) | (314,941 | ) | ||||||
|
Cash proceeds from divestiture activities (Note 2)
|
19,108 | 11,785 | 14,318 | |||||||||
|
|
||||||||||||
|
Net cash flows used for investing activities
|
(809,975 | ) | (112,421 | ) | (397,685 | ) | ||||||
|
|
||||||||||||
|
Effect of exchange rate changes on cash and cash equivalents
|
51,916 | (5,755 | ) | (11,637 | ) | |||||||
|
|
||||||||||||
|
Cash and cash equivalents:
|
||||||||||||
|
— (decrease) increase
|
(416,768 | ) | 148,181 | 303,472 | ||||||||
|
— at beginning of year
|
1,092,102 | 943,921 | 640,449 | |||||||||
|
|
||||||||||||
|
— at end of year
|
$ | 675,334 | $ | 1,092,102 | $ | 943,921 | ||||||
|
|
||||||||||||
|
Additional cash flow information (Note 15)
|
||||||||||||
See notes to consolidated financial statements
42
Table of Contents
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of significant accounting policies
Principles of consolidation
— The accompanying consolidated financial statements include the
accounts of the Company and all of its majority-owned and controlled subsidiaries. All intercompany
accounts and transactions have been eliminated.
Cash and cash equivalents
— The Company considers all highly liquid investments with an
original maturity of three months or less to be cash equivalents.
Inventories
— Inventories, comprised principally of finished goods, are stated at cost
(first-in, first-out) or market, whichever is lower.
Investments
— Investments in joint ventures and entities in which the Company has an
ownership interest greater than 50% and exercises control over the venture are consolidated in the
accompanying consolidated financial statements. Non-controlling interests in the years presented
are not material and, as a result, are included in the caption “accrued expenses and other” in the
accompanying consolidated balance sheets. Investments in joint ventures and entities in which the
Company exercises significant influence but not control are accounted for using the equity method.
The Company invests from time to time in ventures in which the Company’s ownership interest is less
than 20% and over which the Company does not exercise significant influence. Such investments are
accounted for using the cost method. The fair values for investments not traded on a quoted
exchange are estimated based upon the historical performance of the ventures, the ventures’
forecasted financial performance and management’s evaluation of the ventures’ viability and
business models. To the extent the book value of an investment exceeds its assessed fair value, the
Company will record an appropriate impairment charge. Thus, the carrying value of the Company’s
investments approximates fair value.
Depreciation and amortization
— Depreciation and amortization is generally provided for by
the straight-line method over the estimated useful lives of the assets. The estimated useful lives
for depreciation and amortization are typically as follows: buildings — 30 years; machinery,
fixtures and equipment — 2-10 years; and leasehold improvements — over the applicable remaining
lease term or useful life if shorter.
Long-lived assets
— Long-lived assets are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of the assets may not be recoverable. An
impairment is recognized when the estimated undiscounted cash flows expected to result from the use
of the asset and its eventual disposition is less than its carrying amount. An impairment is
measured as the amount by which an asset’s net book value exceeds its estimated fair value. The
Company continually evaluates the carrying value and the remaining economic useful life of all
long-lived assets and will adjust the carrying value and the related depreciation and amortization
period if and when appropriate.
Goodwill
— Goodwill represents the excess of the purchase price over the fair value of net
assets acquired. Annual tests for goodwill impairment are performed by applying a fair-value based
test to Avnet’s six reporting units, defined as each of the three regional businesses, which are
the Americas, EMEA (Europe, Middle East and Africa), and Asia, within each of the Company’s
operating groups. The Company conducts its periodic test for goodwill impairment annually, on the
first day of the fiscal fourth quarter. A two-step process is used to evaluate goodwill for
impairment. The first step is to determine if there is an indication of impairment by comparing the
estimated fair value of each reporting unit to its carrying value including existing goodwill.
Goodwill is considered impaired if the carrying value of a reporting unit exceeds the estimated
fair value. The second step, which is performed only if there is an indication of impairment,
determines the amount of the impairment by comparing the implied fair value of the reporting unit’s
goodwill with its carrying value. To estimate fair value of each reporting unit, the Company uses a
combination of present value and market valuation techniques which utilizes Level 3 criteria under
fair value measurement standards. The estimated fair values could change in the future due to
changes in market and business conditions that could affect the assumptions and estimates used in
these valuation techniques.
Foreign currency translation
— The assets and liabilities of foreign operations are
translated into U.S. Dollars at the exchange rates in effect at the balance sheet date, with the
related translation adjustments reported as a separate component of shareholders’ equity and
comprehensive income. Results of operations are translated using the average exchange rates
prevailing throughout the period. Transactions denominated in currencies other than the functional
currency of the Avnet business unit that is party to the
transaction (primarily trade receivables and payables) are translated at exchange rates in effect
at the balance sheet date or upon settlement of the transaction. Gains and losses from such
translation are recorded in the consolidated statements of operations as a component of “other
income (expense), net.” In fiscal 2011, 2010 and 2009, gains or losses on foreign currency
translation were not material.
43
Table of Contents
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Income taxes
— The Company follows the asset and liability method of accounting for income
taxes. Deferred income tax assets and liabilities are recognized for the estimated future tax
impact of differences between the financial statement carrying amounts of assets and liabilities
and their respective tax bases. Deferred income tax assets and liabilities are measured using
enacted tax rates in effect for the year in which those temporary differences are expected to be
recovered or settled. The effect on deferred income tax assets and liabilities of a change in tax
rates is recognized in earnings in the period in which the new rate is enacted. Based upon
historical and projected levels of taxable income and analysis of other key factors, the Company
may record a valuation allowance against its deferred tax assets, as deemed necessary, to state
such assets at their estimated net realizable value.
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.
No provision for U.S. income taxes has been made for approximately $2.0 billion of cumulative
unremitted earnings of foreign subsidiaries at July 2, 2011 because those earnings are expected to
be permanently reinvested outside the U.S. A hypothetical calculation of the deferred tax
liability, assuming those earnings were remitted, is not practicable.
Self-insurance
— The Company is primarily self-insured for workers’ compensation, medical,
and general, product and automobile liability costs; however, the Company also has a stop-loss
insurance policy in place to limit the Company’s exposure to individual and aggregate claims made.
Liabilities for these programs are estimated based upon outstanding claims and claims estimated to
have been incurred but not yet reported based upon historical loss experience. These estimates are
subject to variability due to changes in trends of losses for outstanding claims and incurred but
not recorded claims, including external factors such as future inflation rates, benefit level
changes and claim settlement patterns.
Revenue recognition
—Revenue from product sales is recognized when persuasive evidence of an
arrangement exists, delivery has occurred or services have been rendered, the sales price is fixed
or determinable and collectibility is reasonably assured. Generally, these criteria are met upon
shipment to customers. Most of the Company’s product sales come from product Avnet purchases from a
supplier and holds in inventory. A portion of the Company’s sales are shipments of product directly
from its suppliers to its customers. In such circumstances, Avnet negotiates the price with the
customer, pays the supplier directly for the product shipped and bears credit risk of collecting
payment from its customers. Furthermore, in such drop-shipment arrangements, Avnet bears
responsibility for accepting returns of product from the customer even if Avnet, in turn, has a
right to return the product to the original supplier if the product is defective. Under these
terms, the Company serves as the principal with the customer and, therefore, recognizes the sale
and cost of sale of the product upon receiving notification from the supplier that the product has
shipped.
In addition, the Company has more limited contractual relationships with certain of its
customers and suppliers whereby Avnet assumes an agency relationship in the transaction. In such
arrangements, the Company recognizes the fee associated with serving as an agent in sales with no
associated cost of sales.
Revenues from maintenance contracts are recognized ratably over the life of the contracts,
generally ranging from one to three years.
Revenues are recorded net of discounts, rebates and estimated returns. Provisions are made for
discounts and rebates, which are primarily volume-based, and are based on historical trends and
anticipated customer buying patterns. Provisions for returns are estimated based on historical
sales returns, credit memo analysis and other known factors.
44
Table of Contents
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Comprehensive income (loss)
— Comprehensive income (loss) represents net income (loss) for the
year adjusted for changes in shareholders’ equity from non-shareholder sources. Accumulated
comprehensive income items typically include currency translation and the impact of the Company’s
pension liability adjustment, net of tax (see Note 4).
Stock-based compensation
—The Company measures share-based payments, including grants of
employee stock options, at fair value and recognizes the associated expense in the consolidated
statement of operations over the service period (see Note 12).
Concentration of credit risk
— Financial instruments that potentially subject the Company to
a concentration of credit risk principally consist of cash and cash equivalents and trade accounts
receivable. The Company invests its excess cash primarily in overnight Eurodollar time deposits and
institutional money market funds with quality financial institutions. The Company sells electronic
components and computer products primarily to original equipment and contract manufacturers,
including the military and military contractors, throughout the world. To reduce credit risk,
management performs ongoing credit evaluations of its customers’ financial condition and, in some
instances, has obtained insurance coverage to reduce such risk. The Company maintains reserves for
potential credit losses, but has not experienced any material losses related to individual
customers or groups of customers in any particular industry or geographic area.
Fair value of financial instruments
— The Company measures financial assets and liabilities
at fair value based upon exit price, representing the amount that would be received on the sale of
an asset or paid to transfer a liability, in an orderly transaction between market participants.
Accounting standards require inputs used in valuation techniques for measuring fair value on a
recurring or non-recurring basis be assigned to a hierarchical level as follows: Level 1 are
observable inputs that reflect quoted prices for identical assets or liabilities in active markets.
Level 2 are observable market-based inputs or unobservable inputs that are corroborated by market
data and Level 3 are unobservable inputs that are not corroborated by market data. The carrying
amounts of the Company’s financial instruments, including cash and cash equivalents, receivables
and accounts payable approximate their fair values at July 2, 2011 due to the short-term nature of
these instruments. At July 2, 2011 and July 3, 2010, the Company had $164,157,000 and $643,281,000,
respectively, of cash equivalents which were recorded based upon Level 1 criteria. See Note 7 for
further discussion of the fair value of the Company’s fixed rate long-term debt instruments and see
Investments
in this Note 1 for further discussion of the fair value of the Company’s investments in
unconsolidated entities.
Derivative financial instruments
— 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 the foreign
exchange contracts is offset by the changes in valuation of the underlying items being hedged. The
asset or liability representing the fair value of foreign exchange contracts, based upon Level 2
criteria under the fair value measurements standards, is classified in the captions “other current
assets” or “accrued expenses and other,” as applicable, in the accompanying consolidated balance
sheets and were not material. In addition, the Company did not have material gains or losses
related to the forward contracts which are recorded in “other income (expense), net” in the
accompanying consolidated statements of operations.
The Company has, from time to time, entered into hedge transactions that convert certain fixed
rate debt to variable rate debt. To the extent the Company enters into such hedge transactions,
those fair value hedges and the hedged debt are adjusted to current market values through interest
expense.
The Company generally does not hedge its investment in its foreign operations. The Company
does not enter into derivative financial instruments for trading or speculative purposes and
monitors the financial stability and credit standing of its counterparties.
Accounts receivable securitization
— The Company has an accounts receivable securitization
program whereby the Company may sell receivables in securitization transactions and retain a
subordinated interest and servicing rights to those receivables. The securitization program is
accounted for as an on-balance sheet financing through the securitization of accounts receivable
(see Note 3).
45
Table of Contents
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Fiscal year
— The Company operates on a “52/53 week” fiscal year, which ends on the Saturday
closest to June 30th. Fiscal 2011 and 2009 contained 52 weeks while fiscal 2010 contained 53 weeks.
Unless otherwise noted, all references to “fiscal 2011” or any other “year” shall mean the
Company’s fiscal year.
Management estimates
— The preparation of financial statements in conformity with U.S.
generally accepted accounting principles requires management to make estimates and assumptions that
affect certain reported amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those estimates.
Adoption of accounting standard —
The Financial Accounting Standards Board (“FASB”) issued
authoritative guidance which 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 adopted this standard, however, there was no impact to the
fiscal 2010 consolidated financial statements because the Company’s 2% Convertible Senior
Debentures (the “Debentures”), to which this standard applied, were extinguished in March 2009.
Due to the required retrospective application of this standard to prior periods, the Company
adjusted the prior period comparative consolidated financial statements, which are summarized in
the following tables.
As a result of the adoption of this accounting standard, the Company recognized the cumulative
effect of the change on certain components of equity as of the beginning of the earliest fiscal
year presented in the consolidated statements of shareholders’ equity as presented in the following
table:
| June 28, 2008 | ||||||||||||
| As Reported | Adjustments | As Adjusted | ||||||||||
| (Thousands) | ||||||||||||
|
Additional paid in capital
(1)
|
$ | 1,122,852 | $ | 43,190 | $ | 1,166,042 | ||||||
|
Retained earnings
(2)
|
$ | 2,379,723 | $ | (35,940 | ) | $ | 2,343,783 | |||||
| (1) |
Adjustment represents the value of the equity component of the Debentures, net of
deferred taxes.
|
|
| (2) |
Adjustment represents the accretion of the debt discount, net of tax, over the
expected life of the Debentures, which was five
years from the date of issuance, or March 2009, because this was the earliest date the holders
had a right to exercise their put option.
|
| Fiscal Year Ended | ||||
| Adjustments-increase (decrease) | June 27, 2009 | |||
| (Thousands, except | ||||
| per share data) | ||||
|
Selling, general and adminstrative expenses
(3)
|
$ | (291 | ) | |
|
Interest expense
(4)
|
12,185 | |||
|
Income tax provision
|
(4,644 | ) | ||
|
Net income
|
(7,250 | ) | ||
|
Basic EPS
|
$ | (0.05 | ) | |
|
Diluted EPS
|
$ | (0.05 | ) | |
| (3) |
Adjustment represents a reduction to deferred financing cost amortization expense as
a result of allocating a portion of such costs to the equity component of the Debentures.
|
|
| (4) |
Adjustment represents incremental non-cash interest expense as a result of accreting
the Debenture debt discount.
|
46
Table of Contents
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Recently issued accounting pronouncements
— In June 2011, the FASB amended its guidance on
the presentation of comprehensive income in financial statements. The amended guidance eliminates
the option to present components of other
comprehensive income (“OCI”) as part of the statement of changes in equity. Instead, entities
can elect to present items of net income and OCI in one continuous statement (a “statement of
comprehensive income”), or can elect to present these items in two separate but consecutive
statements. The guidance, which is effective beginning the Company’s fiscal year 2013, will not
have an impact on the Company’s consolidated financial statements as the guidance only relates to
changes in financial statement presentation.
In April 2011, the FASB issued new guidance to achieve common fair value measurement and
disclosure requirements between U.S. generally accepted accounting principles (“U.S. GAAP”) and
International Financial Reporting Standards (“IFRS”). This new guidance, which is effective
beginning the Company’s fiscal year 2012, amends current U.S. GAAP fair value measurement and
disclosure requirements to include increased transparency around valuation inputs and investment
categorization. The adoption of this new guidance is not expected to have a material impact on the
Company’s consolidated financial statements.
2. Acquisitions and divestitures
Acquisitions
During fiscal 2011, 2010 and 2009, the Company acquired sixteen businesses which are presented
in the following table.
| Approximate | ||||||||
| Annualized | Acquisition | |||||||
| Acquired Business | Group & Region | Revenues (1) | Date | |||||
| (Millions) | ||||||||
|
Fiscal 2011
|
||||||||
|
itX Group Ltd.
|
TS Asia/Pac | $ | 160 | January 2011 | ||||
|
Center Cell
|
EM Americas | 5 | November 2010 | |||||
|
Eurotone
|
EM Asia/Pac | 30 | October 2010 | |||||
|
Broadband
|
EM Americas | 8 | October 2010 | |||||
|
Unidux
|
EM Asia/Pac | 370 | July 2010 | |||||
|
Tallard Technologies
|
TS Americas | 250 | July 2010 | |||||
|
Bell Microproducts Inc.
|
EM & TS Americas | 3,021 | July 2010 | |||||
|
|
TS EMEA | |||||||
|
|
||||||||
|
Fiscal 2010
|
||||||||
|
Servodata HP Division
|
TS EMEA | $ | 20 | April 2010 | ||||
|
PT Datamation
|
TS Asia/Pac | 90 | April 2010 | |||||
|
Sunshine Joint Stock Company
|
TS Asia/Pac | 30 | November 2009 | |||||
|
Vanda Group
|
TS Asia/Pac | 30 | October 2009 | |||||
|
|
||||||||
|
Fiscal 2009
|
||||||||
|
Abacus Group plc
|
EM EMEA | $ | 400 | January 2009 | ||||
|
Nippon Denso Industry Co., Ltd.
|
EM Asia/Pac | 140 | December 2008 | |||||
|
Ontrack Solutions Pvt. Ltd.
|
TS Asia/Pac | 13 | July 2008 | |||||
|
Horizon Technology Group plc
|
TS EMEA | 400 | June 2008 | |||||
|
Source Electronics Corporation
|
EM Americas | 82 | June 2008 | |||||
| (1) |
Represents the approximate annual revenue from the acquired businesses’ most recent
fiscal year end prior to acquisition by Avnet and based upon average foreign currency exchange rates for those periods.
|
47
Table of Contents
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Bell and Unidux acquisitions and purchase price are described further below. The
remaining acquisitions completed during fiscal 2011 were acquired for an aggregate purchase price
of $124,678,000, net of cash acquired.
Also during fiscal 2011, the Company recognized restructuring and integration charges, and
transaction and other costs associated with the acquisitions, all of which were recognized in the
consolidated statement of operations and are described further in Note 17.
Unidux, a Japanese publicly traded company, was acquired through a tender offer in which the
Company obtained over 95% controlling interest. The non-controlling interest was recorded at fair
value but was not material. The acquisition of the non-controlling interest in Unidux was completed
during the second quarter of fiscal 2011. As mentioned, Unidux was a publicly traded company which
shares were trading below its book value for a period of time. In a tender offer, Avnet offered a
purchase price per share for Unidux that was above the prevailing trading price thereby
representing a premium to the then recent trading levels. Even though the purchase price was below
book value, 95% of the Unidux shareholders tendered their shares. As a result, the Company
acquired Unidux net assets excluding cash of $163,770,000 for a purchase price of $132,780,000, net
of cash acquired, and recognized a gain on bargain purchase of $30,990,000 pre- and after tax and
$0.20 per share on a diluted basis. Prior to recognizing the gain, the Company reassessed the
assets acquired and liabilities assumed in the acquisition.
Bell
On July 6, 2010, subsequent to fiscal year 2010, the Company completed its acquisition of
Bell, a value-added distributor of storage and server products and solutions and computer
components products, providing integration and support services to OEMs, VARs, system builders and
end users in the U.S., Canada, EMEA and Latin America. Bell operated both a distribution and single
tier reseller business and generated sales of approximately $3.0 billion in calendar 2009, of which
42%, 41% and 17% was generated in North America, EMEA and Latin America, respectively. The
consideration for the transaction totaled $255,691,000 which consisted of $7.00 in cash for each
share of Bell common stock outstanding, cash payment for Bell equity awards, and cash payments
required under existing Bell change of control agreements, plus the assumption of $323,321,000 of
Bell net debt. Of the debt acquired, Avnet repaid approximately
$209,651,000 of debt (including
associated fees) immediately after closing. As of the end of fiscal 2011, the Company had completed
the integration of Bell into both the EM and TS operating groups and has achieved its anticipated
cost saving synergies, for which the full impact of the cost savings benefit is expected to be
reflected in the first quarter of fiscal 2012.
Preliminary allocation of purchase price
The Bell acquisition was accounted for as a purchase business combination. Assets acquired and
liabilities assumed are recorded in the accompanying consolidated balance sheet at their estimated
fair values, using management’s estimates and assumptions, as of July 6, 2010 (see following
table).
As a result of the evaluation of the fair value of the acquired assets and assumed
liabilities, the Company recognized $60,000,000 for an identifiable amortizable intangible asset
(see Note 6).
During the second quarter of fiscal 2011, the Company recognized a contingent liability of
$18,000,000 for potential unpaid import duties associated with the former Bell Latin America
business. Prior to the acquisition of Bell by Avnet, U.S. Customs and Border Protection (“CBP”)
initiated a review of the importing process at one of Bell’s subsidiaries and identified compliance
deficiencies. Subsequent to the acquisition of Bell by Avnet, CBP began a compliance audit to
identify any duty owed as a result of the prior non-compliance. As of July 2, 2011, the Company
continued to evaluate the potential exposure based upon further activities associated with the
audit and the Company’s ability to obtain appropriate documentation for certain transactions under
audit. The Company has evaluated projected duties, interest and penalties that potentially may be
imposed as a result of the audit and, as further information has become available during the fourth
quarter of fiscal 2011, the Company reduced the contingent liability from $18,000,000 to
$10,000,000, which was recorded to goodwill. Depending on the ultimate resolution of the matter
with CBP, the Company estimates the range of the potential exposure associated with this liability
may be up to $73 million; however, the Company believes the contingent liability recorded is a
reasonable estimate of the liability based upon facts available at this time.
48
Table of Contents
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company acquired accounts receivable which were recorded at the estimated fair value
amounts; however, adjustments to acquired amounts were not significant as book value approximated
fair value due to the short term nature of accounts receivables. The gross amount of accounts
receivable acquired was $381,805,000 and the fair value recorded was $363,589,000, which is
expected to be collected.
| July 6, 2010 | ||||
| (Thousands) | ||||
|
Current assets
|
$ | 705,986 | ||
|
Property, plant and equipment
|
13,022 | |||
|
Goodwill
|
224,265 | |||
|
Identifiable intangible asset
|
60,000 | |||
|
Other assets
|
37,964 | |||
|
|
||||
|
Total assets acquired
|
1,041,237 | |||
|
|
||||
|
Current liabilities, excluding current portion of long-term debt
|
396,875 | |||
|
Long-term liabilities
|
30,218 | |||
|
Total debt
|
358,453 | |||
|
|
||||
|
Total liabilities assumed
|
785,546 | |||
|
|
||||
|
Net assets acquired
|
$ | 255,691 | ||
|
|
||||
The amount of goodwill associated with the Bell acquisition that is expected to be deductible
for tax purposes is not significant.
Significant synergies related to the integration of the acquired Bell business have resulted
in operating cost reductions; such expense synergy savings were a primary driver of the excess of
purchase price paid over the value of assets and liabilities acquired.
Pro forma results
Unaudited pro forma financial information is presented below as if the acquisition of Bell
occurred at the beginning of fiscal 2010. The pro forma information presented below does not
purport to present what actual results would have been had the acquisition in fact occurred at the
beginning of fiscal 2010, nor does the information project results for any future period. In
addition, the pro forma results exclude the impact of any synergies realized as a result of
integration activity.
| Pro Forma Results | ||||
| Twelve Months Ended | ||||
| July 3, 2010 | ||||
| (Thousands, except per | ||||
| share data) | ||||
|
Pro forma sales
|
$ | 22,291,579 | ||
|
Pro forma operating income
|
660,769 | |||
|
Pro forma net income
|
404,249 | |||
|
|
||||
|
Pro forma diluted earnings per share
|
$ | 2.64 | ||
In order to create the pro forma results in the table above, the combined results for Avnet
and Bell for the twelve months ended fiscal 2010 were adjusted for the following:
| • |
$8,571,000 pre-tax, $6,074,000 after tax, or $0.04 per diluted share for fiscal 2010 of
intangible asset amortization associated with the Bell acquisition; and
|
| • |
$5,181,000 pre-tax, $3,168,000 after tax, or $0.02 per diluted share for fiscal 2010 for
Bell transaction costs that were expensed upon closing.
|
Pro forma financial information is not presented for fiscal 2011 because the Bell acquisition
occurred on July 6, 2010, which is three days after the beginning of the Company’s fiscal year
2011. The accompanying consolidated statement of operations for the first quarter of fiscal 2011
included sales of $781,135,000 related to the acquired Bell business. As of the end of the second
quarter of fiscal 2011, the Company was in the process of integrating the Bell business into the
Avnet existing business, which included IT systems integration, and administrative, sales and
logistics operations integrations. As a result, after the first quarter of fiscal 2011, the
Company was no longer able to identify the acquired Bell business separately from the on-going
Avnet business.
49
Table of Contents
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Prior year acquisition-related exit activity accounted for in purchase accounting
Prior to fiscal 2010, certain restructuring charges were recognized as part of purchase
accounting under previous accounting standards. During fiscal 2007 and 2006, the Company recorded
certain exit-related liabilities through purchase accounting which consisted of severance for
workforce reductions, non-cancelable lease commitments and lease termination charges for leased
facilities, and other contract termination costs associated with the exit activities. During fiscal
2011, the Company paid $462,000 in cash associated with these reserves. In addition, the Company
released $2,258,000 of lease reserves that were determined to be no longer required and recorded
the credit to “restructuring, integration and other charges” rather than as a credit to goodwill
because the goodwill was impaired in fiscal 2009 (see Note 6). As of July 2, 2011, the total
remaining reserve was $2,827,000 which related primarily to facility exit costs and other
contractual lease obligations which management expects to be substantially utilized by the end of
fiscal 2013.
Investments and divestitures
The Company completed its divestiture of New ProSys Corp. (“ProSys”), a value-added reseller
and provider of IT infrastructure solutions. Avnet acquired ProSys as part of the Bell acquisition
on July 6, 2010, and announced its intention to sell this business at that time. Total
consideration included a cash payment at closing, a short-term receivable and a three-year earn-out
based upon ProSys’ anticipated results. As a result of the divestiture, the Company received cash
proceeds of $19,108,000 and wrote off goodwill associated with the ProSys business (see Note 6).
No gain or loss was recorded as a result of the divestiture. Also during fiscal 2011, the Company
recognized a loss of $6,308,000 pre-tax, $3,857,000 after tax and $0.02 per share on a diluted
basis included in “Gain on bargain purchase and other” related to the write down of prior
investments in smaller technology start-up companies (see Notes 5 and 6 for other amounts included
in “Gain on bargain purchase and other”).
During fiscal 2010, the Company recognized a gain on the sale of assets as a result of certain
earn-out provisions associated with the prior sale of the Company’s equity investment in Calence
LLC. The gain on sale of assets was $8,751,000 pre-tax, $5,370,000 after tax and $0.03 per share
on a diluted basis. In addition, the Company sold a cost method investment and received proceeds
of approximately $3,034,000 in the second quarter of fiscal 2010.
During fiscal 2009, the Company recognized a gain on the sale of assets amounting to
$14,318,000 pre-tax, $8,727,000 after tax and $0.06 per share as a result of certain earn-out
provisions associated with the prior sale of the Company’s equity investment in Calence LLC.
3. Accounts receivable securitization
In August 2010, the Company amended its accounts receivable securitization program (the
“Program”) with a group of financial institutions to allow the Company to sell, on a revolving
basis, an undivided interest of up to $600,000,000 ($450,000,000 prior to the amendment) in
eligible U.S. receivables while retaining a subordinated interest in a portion of the receivables.
The eligible receivables are sold through a wholly-owned bankruptcy-remote special purpose entity
that is consolidated for financial reporting purposes. Such eligible receivables are not directly
available to satisfy claims of the Company’s creditors. Financing under the Program does not
qualify as off-balance sheet financing, as a result, the receivables and related debt obligation
remain on the Company’s consolidated balance sheet as amounts are drawn on the Program. The Program
has a one year term that expires at the end of August 2011 which is expected to be renewed for
another year on comparable terms. There were $160,000,000 in borrowings outstanding under the
Program at July 2, 2011 and no amounts outstanding as of July 3, 2010. Interest on borrowings is
calculated using a base rate or a commercial paper rate plus a spread of 0.425%. The facility fee
is 0.50%. Expenses associated with the Program, which were not material in the past three fiscal
years, consisted of program, facility and professional fees recorded in selling, general and
administrative expenses in the accompanying consolidated statements of operations.
50
Table of Contents
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
4. Comprehensive income (loss)
The following table illustrates the accumulated balances of comprehensive income items at July
2, 2011, July 3, 2010 and June 27, 2009:
| July 2, | July 3, | June 27, | ||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| (Thousands) | ||||||||||||
|
Accumulated translation adjustments, net
|
$ | 461,213 | $ | 131,329 | $ | 290,846 | ||||||
|
Accumulated pension liability adjustments, net of income taxes
|
(84,002 | ) | (103,967 | ) | (72,752 | ) | ||||||
|
|
||||||||||||
|
Total
|
$ | 377,211 | $ | 27,362 | $ | 218,094 | ||||||
|
|
||||||||||||
5. Property, plant and equipment, net
Property, plant and equipment are recorded at cost and consist of the following:
| July 2, | July 3, | |||||||
| 2011 | 2010 | |||||||
| (Thousands) | ||||||||
|
Land
|
$ | 22,467 | $ | 20,697 | ||||
|
Buildings
|
112,072 | 102,875 | ||||||
|
Machinery, fixtures and equipment
|
805,093 | 663,915 | ||||||
|
Leasehold improvements
|
92,728 | 56,686 | ||||||
|
|
||||||||
|
|
1,032,360 | 844,173 | ||||||
|
Less — accumulated depreciation and amortization
|
(613,187 | ) | (541,590 | ) | ||||
|
|
||||||||
|
|
$ | 419,173 | $ | 302,583 | ||||
|
|
||||||||
Depreciation and amortization expense related to property, plant and equipment was
$57,516,000, $49,692,000 and $50,653,000 in fiscal 2011, 2010 and 2009, respectively. In addition,
the Company recognized other charges of $1,968,000 pre-tax, $1,413,000 after tax and $0.01 per
share on a diluted basis primarily related to an impairment of buildings in EMEA (see Notes 2 and 6
for other amounts included in “Gain on bargain purchase and other”).
6. Goodwill and intangible assets
The following table presents the carrying amount of goodwill, by reportable segment, for the
periods presented:
| Electronics | Technology | |||||||||||
| Marketing | Solutions | Total | ||||||||||
| (Thousands) | ||||||||||||
|
Carrying value at July 3, 2010
|
$ | 242,626 | $ | 323,683 | $ | 566,309 | ||||||
|
Additions
|
100,356 | 244,173 | 344,529 | |||||||||
|
Adjustments
|
— | (53,565 | ) | (53,565 | ) | |||||||
|
Foreign currency translation
|
9,888 | 17,911 | 27,799 | |||||||||
|
|
||||||||||||
|
Carrying value at July 2, 2011
|
$ | 352,870 | $ | 532,202 | $ | 885,072 | ||||||
|
|
||||||||||||
The goodwill additions are a result of the Bell acquisition as well as other businesses that
were acquired during fiscal 2011 (see Note 2). The Unidux acquisition resulted in $30,990,000 of
negative goodwill which was included in “Gain on bargain purchase and other” on the consolidated
statement of operations (see Notes 2 and 5 for other amounts included in “Gain on bargain purchase
and other”). The adjustments to goodwill resulted from the write off of goodwill as a result of
the sale of ProSys (see Note 2) and the recognition of intangible assets associated with an
acquisition completed during fiscal 2011 (see
Intangible assets
in this Note 6).
51
Table of Contents
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table presents the gross amount of goodwill and accumulated impairment since
fiscal 2009 as of July 3, 2010 and July 2, 2011. All of the accumulated impairment was recognized
in fiscal 2009.
| Electronics | Technology | |||||||||||
| Marketing | Solutions | Total | ||||||||||
| (Thousands) | ||||||||||||
|
Gross goodwill at July 3, 2010
|
$ | 1,287,736 | $ | 658,307 | $ | 1,946,043 | ||||||
|
Accumulated impairment
|
(1,045,110 | ) | (334,624 | ) | (1,379,734 | ) | ||||||
|
|
||||||||||||
|
Carrying value at July 3, 2010
|
$ | 242,626 | $ | 323,683 | $ | 566,309 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Gross
goodwill at July 2, 2011
|
$ | 1,397,980 | $ | 866,826 | $ | 2,264,806 | ||||||
|
Accumulated impairment
|
(1,045,110 | ) | (334,624 | ) | (1,379,734 | ) | ||||||
|
|
||||||||||||
|
Carrying
value at July 2, 2011
|
$ | 352,870 | $ | 532,202 | $ | 885,072 | ||||||
|
|
||||||||||||
The Company performs its annual goodwill impairment test on the first day of its fiscal fourth
quarter. In addition, if and when events or circumstances change that would more likely than not
reduce the fair value of any of its reporting units below its carrying value, an interim test would
be performed. Based upon the Company’s annual impairment tests performed for fiscal 2011 and 2010,
there was no impairment of goodwill in the respective fiscal years. During fiscal 2009, the
Company recognized goodwill and intangible asset impairment charges of $1,411,127,000 pre-tax,
$1,376,983,000 after tax and $9.13 per share resulting from an interim impairment test performed at
the end of the second quarter and from the annual impairment test performed during the fourth
quarter of fiscal 2009. The non-cash charge had no impact on the Company’s compliance with debt
covenants, its cash flows or available liquidity, but did have a material impact on its
consolidated financial statements.
Fiscal 2009 impairment charges
In the second quarter of fiscal 2009, due to the steady decline in the Company’s market
capitalization primarily related to the global economic downturn, the Company determined an interim
impairment test was necessary. Based upon the test results, it was determined that the fair values
of four of the Company’s six reporting units were below their carrying values as of the end of the
second quarter of fiscal 2009. Accordingly, the Company recognized a non-cash goodwill impairment
charge of $1,317,452,000 pre-tax, $1,283,308,000 after-tax and $8.51 per share in its second
quarter of fiscal 2009 results.
A two step process is used to test for goodwill impairment. The first step is to determine if
there is an indication of impairment by comparing the estimated fair value of each reporting unit
to its carrying value including existing goodwill. Goodwill is considered impaired if the carrying
value of a reporting unit exceeds the estimated fair value. Upon an indication of impairment, a
second step is performed to determine the amount of the impairment by determining the implied fair
value of all of the reporting unit’s assets and liabilities, including identifiable intangible
assets, and comparing the implied fair value of goodwill with its carrying value. The
determination of fair value in both step one and step two utilized Level 3 criteria under fair
value measurement standards.
To estimate the fair value of its reporting units for step one, the Company utilized a
combination of income and market approaches. The income approach, specifically a discounted cash
flow methodology, included 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 by management. These assumptions took
into account the recessionary environment at the time the test was being performed and its impact
on the Company’s business. In addition, the Company utilized a discount rate appropriate to
compensate for the additional risk in the equity markets regarding the Company’s future cash flows
in order to arrive at a control premium considered supportable based upon historical comparable
transactions.
52
Table of Contents
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The results of step one indicated that the goodwill related to the EM Asia, TS EMEA and TS
Asia reporting units was fully impaired. Therefore, the Company only performed step two of the
impairment analysis for its EM Americas reporting unit. Step two of the impairment test required
the Company to fair value all of the reporting unit’s assets and liabilities, including
identifiable intangible assets, and compare the implied fair value of goodwill to its carrying
value. The results of step two indicated that the goodwill in the EM Americas reporting unit was
also fully impaired.
During the fourth quarter of fiscal 2009, the Company performed its annual goodwill impairment
test which indicated that three of its six reporting units, including EM Asia and TS EMEA,
continued to have fair values below their carrying values. As a result, the Company was required
to recognize the impairment of additional goodwill which arose subsequent to the second quarter of
fiscal 2009 in the EM Asia and TS EMEA reporting units. Of the non-cash goodwill impairment
charges of $62,282,000 pre- and after tax and $0.41 per share recognized in the fourth quarter,
$41,433,000 related to the business acquired in Japan in the third quarter of fiscal 2009, which
was assigned to the EM Asia reporting unit. Accounting standards require goodwill from an
acquisition to be assigned to a reporting unit and also requires goodwill to be tested on a
reporting unit level, not by individual acquisition. As noted above, the annual impairment
analysis indicated that the fair value of the EM Asia reporting unit continued to be below its
carrying value. As a result, the goodwill from the acquisition was required to be impaired. The
remaining $20,849,000 of the impairment charges related to additional goodwill in the TS EMEA
reporting unit primarily as a result of final acquisition adjustments during the purchase price
allocation period related to an acquisition for which the goodwill had been fully impaired in the
second quarter of fiscal 2009.
Intangible assets
As of July 2, 2011, “Other assets” included customer relationship intangible assets with a
carrying value of $124,662,000; consisting of $170,417,000 in original cost value and $45,755,000
of accumulated amortization and foreign currency translation. These assets are being amortized over
a weighted average life of eight years. During fiscal 2011, the Company recognized $89,372,000 in
intangible assets associated with acquisitions completed during fiscal 2011. Intangible asset
amortization expense was $21,240,000, $8,629,000 and $12,272,000 in fiscal 2011, 2010 and 2009,
respectively. Amortization expense for the next five years is expected to be approximately
$21,000,000 each year for fiscal 2012 through 2015 and $16,000,000 for 2016.
During fiscal 2009, the Company evaluated the recoverability of its long-lived assets at each
of the reporting units where goodwill was deemed to be impaired. Based upon this evaluation, which
utilized Level 3 criteria under fair value measurement standards, the Company determined that
certain of its amortizable intangible assets were impaired. As a result, the Company recognized a
non-cash intangible asset impairment charge of $31,393,000 pre- and after tax and $0.21 per share
during the second quarter of fiscal 2009. In conjunction with the annual goodwill impairment
test, the Company again evaluated the recoverability of its long-lived assets during the fourth
quarter of fiscal 2009 and determined that no impairment had occurred.
7. External financing
Short-term debt consists of the following:
| July 2, | July 3, | |||||||
| 2011 | 2010 | |||||||
| (Thousands) | ||||||||
|
Bank credit facilities
|
$ | 81,951 | $ | 35,617 | ||||
|
Borrowings under the accounts receivable securitization program
|
160,000 | — | ||||||
|
Other debt due within one year
|
1,128 | 932 | ||||||
|
|
||||||||
|
Short-term debt
|
$ | 243,079 | $ | 36,549 | ||||
|
|
||||||||
Bank credit facilities consist of various committed and uncommitted lines of credit with
financial institutions utilized primarily to support the working capital requirements of foreign
operations. The weighted average interest rate on the bank credit facilities was 7.8% and 4.0% at
the end of fiscal 2011 and 2010, respectively. In connection with acquisitions completed in fiscal
2011 (see Note 2), the Company assumed debt of $420,259,000, of which
$211,933,000 was repaid
(including associated fees) at the acquisition dates. As of the end of the fiscal 2011, the
outstanding balances associated with the assumed debt and credit facilities consisted of
$16,627,000 in bank credit facilities and other debt primarly used to support the acquired foreign
operations. The total debt assumed during fiscal 2011 included the 3.75% Notes due March 2024
acquired from Bell which had a fair value of $110,000,000 and that has substantially been repaid as
is discussed further below.
53
Table of Contents
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In August 2010, the Company amended its accounts receivable securitization program (the
“Program”) with a group of financial institutions to allow the Company to sell, on a revolving
basis, an undivided interest of up to $600,000,000 ($450,000,000 prior to the amendment) in
eligible receivables while retaining a subordinated interest in a portion 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 July 2, 2011. The Program has a one year term that
expires in August 2011 which is expected to be renewed for another year on comparable terms. There
were $160,000,000 in borrowings outstanding under the Program at July 2, 2011 and no amounts
outstanding at July 3, 2010. Interest on borrowings is calculated using a base rate or a
commercial paper rate plus a spread of 0.425%. The facility fee is 0.50%.
Long-term debt consists of the following:
| July 2, | July 3, | |||||||
| 2011 | 2010 | |||||||
| (Thousands) | ||||||||
|
5.875% Notes due March 15, 2014
|
$ | 300,000 | $ | 300,000 | ||||
|
6.00% Notes due September 1, 2015
|
250,000 | 250,000 | ||||||
|
6.625% Notes due September 15, 2016
|
300,000 | 300,000 | ||||||
|
5.875% Notes due June 15, 2020
|
300,000 | 300,000 | ||||||
|
Other long-term debt
|
126,512 | 97,217 | ||||||
|
|
||||||||
|
Subtotal
|
1,276,512 | 1,247,217 | ||||||
|
Discount on notes
|
(3,003 | ) | (3,536 | ) | ||||
|
|
||||||||
|
Long-term debt
|
$ | 1,273,509 | $ | 1,243,681 | ||||
|
|
||||||||
In June 2010, the Company issued $300,000,000 of 5.875% Notes due June 15, 2020. The Company
received proceeds of $296,469,000 from the offering, net of discount and underwriting fees. The
5.875% Notes due 2020 rank equally in right of payment with all existing and future senior
unsecured debt and interest is payable in cash semi-annually in arrears on June 15 and December 15.
The Company has a five-year $500,000,000 unsecured revolving credit facility (the “Credit
Agreement”) with a syndicate of banks which expires in September 2012. Under the Credit Agreement,
the Company may elect from various interest rate options, currencies and maturities. The Credit
Agreement contains certain covenants, all of which the Company was in compliance with as of July 2,
2011. As of the end of fiscal 2011, there were $122,093,000 in borrowings outstanding under the
Credit Agreement included in “other long-term debt” in the consolidated financial statements. In
addition, there were $16,602,000 in letters of credit issued under the Credit Agreement which
represent a utilization of the Credit Agreement capacity but are not recorded in the consolidated
balance sheet as the letters of credit are not debt. At July 3, 2010, there were $93,682,000 in
borrowings outstanding under the Credit Agreement and $8,597,000 in letters of credit issued under
the Credit Agreement.
As a result of the acquisition of Bell, the Company assumed 3.75% Notes due March 2024 which
had a fair value of $110,000,000 and that were convertible into Bell common stock; however, as of
the acquisition completion date, the debt was no longer convertible into shares. Under the terms
of the 3.75% Notes, the Company could have redeemed some or all of the 3.75% Notes for cash anytime
on or after March 5, 2011 and the note holders could have required the Company to purchase for cash
some or all of the 3.75% Notes on March 5, 2011, March 5, 2014 or March 5, 2019 at a redemption
price equal to 100% of the principal amount plus interest. During the first quarter of fiscal
2011, the Company issued a tender offer for the 3.75% Notes for which $5,205,000 was tendered and
paid in September 2010. During the third quarter of fiscal 2011, the note holders tendered
substantially all of the remaining notes for which $104,395,000 was paid in March 2011. The
remaining $400,000 that was not tendered were included in “other long-term debt” in the preceeding
table.
54
Table of Contents
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Aggregate debt maturities for fiscal 2012 through 2016 and thereafter are as follows (in
thousands):
|
2012
|
$ | 243,079 | ||
|
2013
|
124,545 | |||
|
2014
|
301,646 | |||
|
2015
|
321 | |||
|
2016
|
250,000 | |||
|
Thereafter
|
600,000 | |||
|
|
||||
|
Subtotal
|
1,519,591 | |||
|
Discount on notes
|
(3,003 | ) | ||
|
|
||||
|
Total debt
|
$ | 1,516,588 | ||
|
|
||||
At July 2, 2011, the carrying value and fair value of the Company’s debt was $1,516,588,000
and $1,626,394,000, respectively. Fair value was estimated primarily based upon quoted market
prices.
8. Accrued expenses and other
Accrued expenses and other consist of the following:
| July 2, | July 3, | |||||||
| 2011 | 2010 | |||||||
| (Thousands) | ||||||||
|
Payroll, commissions and related accruals
|
$ | 320,958 | $ | 212,830 | ||||
|
Income taxes (Note 9)
|
72,495 | 100,422 | ||||||
|
Other
(1)
|
279,563 | 227,524 | ||||||
|
|
||||||||
|
|
$ | 673,016 | $ | 540,776 | ||||
|
|
||||||||
| (1) |
Includes restructuring reserves recorded through purchase accounting and through
“restructuring, integration and other charges” (see Notes 2 and 17). Amounts presented in
this caption were individually not significant.
|
55
Table of Contents
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
9. Income taxes
The components of the provision for income taxes are indicated in the table below. The tax
provision for deferred income taxes results from temporary differences arising principally from
inventory valuation, accounts receivable valuation, net operating losses, certain accruals and
depreciation, net of any changes to the valuation allowance.
| Years Ended | ||||||||||||
| July 2, | July 3, | June 27, | ||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| (Thousands) | ||||||||||||
|
Current:
|
||||||||||||
|
Federal
|
$ | 64,476 | $ | 61,892 | $ | 69,835 | ||||||
|
State and local
|
11,724 | 9,789 | 7,689 | |||||||||
|
Foreign
|
109,731 | 56,608 | 50,007 | |||||||||
|
|
||||||||||||
|
Total current taxes
|
185,931 | 128,289 | 127,531 | |||||||||
|
|
||||||||||||
|
Deferred:
|
||||||||||||
|
Federal
|
41,029 | 24,251 | (55,743 | ) | ||||||||
|
State and local
|
5,273 | 1,290 | (5,250 | ) | ||||||||
|
Foreign
|
(30,336 | ) | 20,883 | (31,794 | ) | |||||||
|
|
||||||||||||
|
Total deferred taxes
|
15,966 | 46,424 | (92,787 | ) | ||||||||
|
|
||||||||||||
|
Provision for income taxes
|
$ | 201,897 | $ | 174,713 | $ | 34,744 | ||||||
|
|
||||||||||||
The provision for income taxes noted above is computed based upon the split of income (loss)
before income taxes from U.S. and foreign operations. U.S. income (loss) before income taxes was
$273,287,000, $241,029,000 and ($733,915,000) and foreign income (loss) before income taxes was
$597,679,000, $344,054,000 and ($361,053,000) in fiscal 2011, 2010 and 2009, respectively.
A reconciliation between the federal statutory tax rate and the effective tax rate is as
follows:
| Years Ended | ||||||||||||
| July 2, | July 3, | June 27, | ||||||||||
| 2011 | 2010 | 2009 | ||||||||||
|
Federal statutory rate
|
35.0 | % | 35.0 | % | (35.0 | )% | ||||||
|
State and local income taxes, net of federal benefit
|
1.5 | 1.2 | 0.3 | |||||||||
|
Foreign tax rates, net of valuation allowances
|
(5.3 | ) | (6.6 | ) | (2.0 | ) | ||||||
|
Release of valuation allowance, net of U.S. tax expense (as discussed below)
|
(7.4 | ) | — | — | ||||||||
|
Change in contingency reserves
|
1.4 | 2.6 | 1.1 | |||||||||
|
Tax audit settlements
|
(0.4 | ) | (1.6 | ) | (2.9 | ) | ||||||
|
Impairment charges
|
— | — | 41.9 | |||||||||
|
Other, net
|
(1.6 | ) | (0.7 | ) | (0.2 | ) | ||||||
|
|
||||||||||||
|
Effective tax rate
|
23.2 | % | 29.9 | % | 3.2 | % | ||||||
|
|
||||||||||||
Foreign tax rates generally consist of the impact of the difference between foreign and
federal statutory rates applied to foreign income (losses) and also include the impact of valuation
allowances against the Company’s otherwise realizable foreign loss carry-forwards.
Avnet’s effective tax rate on income before income taxes was 23.2% in fiscal 2011 as compared
with an effective tax rate of 29.9% in fiscal 2010. As compared to fiscal 2010, the fiscal 2011
effective tax rate was primarily impacted by a net tax benefit related to the release of a tax
valuation allowance (reserve) on certain deferred tax assets which were determined to be realizable
(discussed further below) and, to a lesser extent, net
favorable tax audit settlements, partially offset by changes to existing tax positions. Excluding the benefit related to the release of the tax valuation
allowance, the effective tax rate for fiscal 2011 would have been 30.6%.
56
Table of Contents
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
During fiscal 2011, the Company had a full tax valuation allowance against significant tax
assets related to a legal entity in EMEA due to, among several other factors, a history of losses
in that entity. Recently, the entity has been experiencing improved earnings which has required the
partial release of the valuation allowance to the extent the entity had taxable income during each
of the first three quarters of fiscal 2011. Therefore, the release of valuation allowance, net of
the U.S. tax expense, positively impacted the Company’s effective tax rate. In addition, during
the fourth quarter of fiscal 2011, the Company determined a portion of the tax valuation allowance
for this legal entity was no longer required due to the expected continuation of improved earnings
in the future and, as a result, the Company’s effective tax rate was positively impacted
(decreased) upon the release of the tax valuation allowance, net of the U.S. tax expense. The
Company will continue to evaluate the need for a valuation allowance against these tax assets and
may release additional valuation allowance associated with this entity in the future. 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.
Avnet’s effective tax rate on income before income taxes was 29.9% in fiscal 2010 as compared
with an effective tax rate of 3.2% in fiscal 2009. The fiscal 2009 effective tax rate was impacted
by non-deductible impairment charges and a change to estimates for existing tax positions, net of
favorable tax audit settlements of $21,672,000. Excluding the impact of these items, the effective
tax rate for fiscal 2009 would have been 28.6%.
The significant components of deferred tax assets and liabilities, included primarily in
“other assets” on the consolidated balance sheets, are as follows:
| July 2, | July 3, | |||||||
| 2011 | 2010 | |||||||
| (Thousands) | ||||||||
|
Deferred tax assets:
|
||||||||
|
Inventory valuation
|
$ | 13,680 | $ | 8,276 | ||||
|
Accounts receivable valuation
|
27,916 | 24,264 | ||||||
|
Federal, state and foreign tax loss carry-forwards
|
394,093 | 361,988 | ||||||
|
Various accrued liabilities and other
|
57,686 | 101,254 | ||||||
|
|
||||||||
|
|
493,375 | 495,782 | ||||||
|
Less — valuation allowance
|
(310,772 | ) | (331,423 | ) | ||||
|
|
||||||||
|
|
182,603 | 164,359 | ||||||
|
Deferred tax liabilities:
|
||||||||
|
Depreciation and amortization of property, plant and equipment
|
(43,302 | ) | (23,177 | ) | ||||
|
|
||||||||
|
Net deferred tax assets
|
$ | 139,301 | $ | 141,182 | ||||
|
|
||||||||
The change in the valuation allowance from fiscal 2010 to fiscal 2011 was a combination of (i)
a reduction of $76,055,000 primarily due to the previously mentioned release of valuation allowance
in EMEA, of which $64,215,000 impacted the effective tax rate and
$11,840,000 did not impact the effective tax rate because deferred
income taxes and income tax payables associated with the release of
the valuation allowance were recorded which offset a portion of the
benefit as a result of the release and (ii) an increase of $55,404,000
related primarily to the translation impact of foreign currency
exchange rates and acquired valuation allowances.
As of July 2, 2011, the Company had foreign net operating loss carry-forwards of approximately
$1,333,787,000, of which $37,065,000 will expire during fiscal 2012 and 2013, substantially all of
which have full valuation allowances, $289,220,000 have expiration dates ranging from fiscal 2014
to 2031 and the remaining $1,007,502,000 have no expiration date. The carrying value of the
Company’s net operating loss carry-forwards is dependent upon the Company’s ability to generate
sufficient future taxable income in certain tax jurisdictions. In addition, the Company considers
historic levels of income, expectations and risk associated with estimates of future taxable income
and on-going prudent and feasible tax planning strategies in assessing a tax valuation allowance.
57
Table of Contents
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Accruals for income tax contingencies (or accruals for unrecognized tax benefits) are included
in “accrued expenses and other” and “other long term liabilities” on the consolidated balance
sheet. These contingency reserves relate to various tax matters that result from uncertainties in
the application of complex income tax regulations in the numerous jurisdictions in which the
Company operates. The change to contingency reserves during fiscal 2011 is primarily due to the
addition of acquired reserves as a result of fiscal 2011 acquisitions and favorable non-cash audit
settlements both of which are included in the “additions/reductions for tax positions taken in
prior periods” captions in the following table. The change to contingency reserves during
fiscal 2010 is primarily due to the recognition of uncertainties in current year tax positions. In
addition, the change to reserves in fiscal 2010 was also impacted by a change to estimates for
existing tax positions and favorable non-cash audit settlements, both of which are included in the
“additions/reductions for tax positions taken in prior periods” captions in the following table.
As of July 2, 2011, unrecognized tax benefits were $175,151,000, of which approximately
$111,299,000, if recognized, would favorably impact the effective tax rate and the remaining
balance would be substantially offset by valuation allowances. As of July 3, 2010, unrecognized
tax benefits were $132,828,000, of which approximately $88,811,000, if recognized, would favorably
impact the effective tax rate, and the remaining balance would be substantially offset by valuation
allowances. 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. The
accrual for unrecognized tax benefits included accrued interest expense and penalties of
$24,640,000 and $18,308,000, net of applicable state tax benefit, as of the end of fiscal 2011 and
2010, respectively.
A reconciliation of the beginning and ending accrual balance for unrecognized tax benefits is
as follows:
| July 2, 2011 | July 3, 2010 | |||||||
| (Thousands) | ||||||||
|
Balance at beginning of year
|
$ | 132,828 | $ | 135,891 | ||||
|
Additions for tax positions taken in prior periods, including interest
|
40,218 | 32,723 | ||||||
|
Reductions for tax positions taken in prior periods, including interest
|
(16,837 | ) | (33,168 | ) | ||||
|
Additions for tax positions taken in current period
|
11,041 | 4,970 | ||||||
|
Reductions related to cash settlements with taxing authorities
|
(616 | ) | (96 | ) | ||||
|
Reductions related to the lapse of statute of limitations
|
(1,565 | ) | (2,006 | ) | ||||
|
Additions (reductions) related to foreign currency translation
|
10,082 | (5,486 | ) | |||||
|
|
||||||||
|
Balance at end of year
|
$ | 175,151 | $ | 132,828 | ||||
|
|
||||||||
The evaluation of income tax positions requires management to estimate the ability of the
Company to sustain its position and estimate the final benefit to the Company. To the extent that
these estimates do not reflect the actual outcome there could be an impact on the consolidated
financial statements in the period in which the position is settled, the statute of limitations
expire or new information becomes available as the impact of these events are recognized in the
period in which they occur. It is difficult to estimate the period in which the amount of a tax
position will change as settlement may include administrative and legal proceedings whose timing
the Company cannot control. The effects of settling tax positions with tax authorities and statute
expirations may significantly impact the accrual for income tax contingencies. Within the next
twelve months, management estimates that approximately $23,000,000 of tax contingencies will be
settled primarily through agreement with the tax authorities for tax positions related to valuation
matters; such matters are common to multinational companies. The expected cash payment related to
the settlement of these contingencies is not significant.
The Company conducts business globally and consequently files income tax returns in numerous
jurisdictions including those listed in the following table. It is also routinely subject to audit
in these and other countries. The Company is no longer subject to audit in its major jurisdictions
for periods prior to fiscal year 1999. The open years, by major jurisdiction, are as follows:
| Jurisdiction | Fiscal Year | |||
|
Belgium
|
1999 – 2011 | |||
|
United States (federal and state) and Singapore
|
2004 – 2011 | |||
|
Hong Kong
|
2005 – 2011 | |||
|
Germany and Taiwan
|
2006 – 2011 | |||
|
United Kingdom
|
2007 – 2011 | |||
|
Netherlands
|
2008 – 2011 | |||
58
Table of Contents
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
10. Pension and retirement plans
Pension Plan
The Company’s noncontributory defined benefit pension plan (the “Plan”) covers substantially
all domestic employees. Employees are eligible to participate in the Plan following the first year
of service during which they worked at least 1,000 hours. The Plan provides defined benefits
pursuant to a cash balance feature whereby a participant accumulates a benefit based upon a
percentage of current salary, which varies with age, and interest credits. The Company uses June 30
as the measurement date for determining pension expense and benefit obligations for each fiscal
year. Not included in the tabulations and discussions that follow are pension plans of certain
non-U.S. subsidiaries, which are not material.
The following tables outline changes in benefit obligations, plan assets and the funded status
of the Plan as of the end of fiscal 2011 and 2010:
| July 2, | July 3, | |||||||
| 2011 | 2010 | |||||||
| (Thousands) | ||||||||
|
Changes in benefit obligations:
|
||||||||
|
Benefit obligations at beginning of year
|
$ | 276,938 | $ | 263,324 | ||||
|
Service cost
|
23,874 | — | ||||||
|
Interest cost
|
13,918 | 15,748 | ||||||
|
Plan amendments
|
— | 34,000 | ||||||
|
Actuarial loss
|
5,168 | 19,591 | ||||||
|
Benefits paid
|
(22,371 | ) | (55,725 | ) | ||||
|
|
||||||||
|
Benefit obligations at end of year
|
$ | 297,527 | $ | 276,938 | ||||
|
|
||||||||
|
Change in plan assets:
|
||||||||
|
Fair value of plan assets at beginning of year
|
$ | 278,964 | $ | 258,931 | ||||
|
Actual return on plan assets
|
67,659 | 34,008 | ||||||
|
Benefits paid
|
(22,371 | ) | (55,725 | ) | ||||
|
Contributions
|
500 | 41,750 | ||||||
|
|
||||||||
|
Fair value of plan assets at end of year
|
$ | 324,752 | $ | 278,964 | ||||
|
|
||||||||
|
|
||||||||
|
Funded status of the plan recognized as a non-current asset
|
$ | 27,225 | $ | 2,026 | ||||
|
|
||||||||
|
Amounts recognized in accumulated other comprehensive income:
|
||||||||
|
Unrecognized net actuarial loss
|
$ | 147,311 | $ | 191,180 | ||||
|
Unamortized prior service credit
|
(14,431 | ) | (16,306 | ) | ||||
|
|
||||||||
|
|
$ | 132,880 | $ | 174,874 | ||||
|
|
||||||||
|
|
||||||||
|
Other changes in plan assets and benefit obligations recognized in other comprehensive income:
|
||||||||
|
Net actuarial (gain) loss
|
$ | (34,931 | ) | $ | 15,720 | |||
|
Prior service cost
|
— | 34,000 | ||||||
|
Amortization of net actuarial loss
|
(8,938 | ) | (5,687 | ) | ||||
|
Amortization of prior service credit
|
1,875 | 4,884 | ||||||
|
|
||||||||
|
|
$ | (41,994 | ) | $ | 48,917 | |||
|
|
||||||||
59
Table of Contents
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Plan was amended effective July 1, 2010 to resume future accruals for compensation paid by
the Company on or after July 1, 2010. The pension accrual formula was similar in structure to the
formula that was frozen as of July 1, 2009. The Plan changes effected by this amendment were as
follows:
| • |
an age-related contribution crediting schedule ranging from 4% to 16% of
pension-eligible compensation
|
| • |
interest credits on post-July 1, 2010 pension accruals of 4% per year
|
| • |
inclusion of overtime pay in pension-eligible compensation
|
| • |
increase of the cap on pension-eligible compensation from $100,000 to the statutory
limit
|
| • |
change in the actuarial factor basis used to convert account balances to annuity
payment forms.
|
In October 2009, the Company agreed to settle a pension litigation matter, which was approved
by the court in April 2010. As a result, the Plan was amended to increase benefits to certain
former employees. This amendment, effective May 21, 2010, increased the benefit obligation by
$34,000,000 and results in a prior service cost base which will be amortized over 11 years. To fund
this additional liability, the Company made a voluntary contribution of $34,000,000 in June 2010.
The impacts of the amendment described above are reflected in the preceding table.
Included in “accumulated other comprehensive income” at July 2, 2011 is a pre-tax charge of
$147,311,000 of net actuarial losses which have not yet been recognized in net periodic pension
cost, of which $9,680,000 is expected to be recognized as a component of net periodic benefit cost
during fiscal 2012. Also included is a pre-tax credit of $14,431,000 of prior service credit which
has not yet been recognized in net periodic pension costs, of which $1,875,000 is expected to be
recognized as a component of net periodic benefit costs during fiscal 2012.
Weighted average assumptions used to calculate actuarial present values of benefit obligations
are as follows:
| 2011 | 2010 | |||||||
|
Discount rate
|
5.25 | % | 5.25 | % | ||||
Weighted average assumptions used to determine net benefit costs are as follows:
| 2011 | 2010 | |||||||
|
Discount rate
|
5.25 | % | 6.25 | % | ||||
|
Expected return on plan assets
|
8.50 | % | 9.00 | % | ||||
The Company bases its discount rate on a hypothetical portfolio of bonds rated Aa by Moody’s
Investor Services or AA by Standard & Poors. The bonds selected for this determination are based
upon the estimated amount and timing of services of the pension plan.
Components of net periodic pension costs during the last three fiscal years are as follows:
| Years Ended | ||||||||||||
| July 2, | July 3, | June 27, | ||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| (Thousands) | ||||||||||||
|
Service cost
|
$ | 23,874 | $ | — | $ | 16,205 | ||||||
|
Interest cost
|
13,918 | 15,748 | 18,175 | |||||||||
|
Expected return on plan assets
|
(27,560 | ) | (30,137 | ) | (26,539 | ) | ||||||
|
Recognized net actuarial loss
|
8,938 | 5,687 | 2,325 | |||||||||
|
Amortization of prior service credit
|
(1,875 | ) | (4,884 | ) | — | |||||||
|
|
||||||||||||
|
Net periodic pension cost
|
$ | 17,295 | $ | (13,586 | ) | $ | 10,166 | |||||
|
|
||||||||||||
The Company made contributions of $500,000 and $41,750,000 in fiscal 2011 and 2010,
respectively.
60
Table of Contents
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Benefit payments are expected to be paid to participants as follows for the next five fiscal
years and the aggregate for the five years thereafter (in thousands):
|
2012
|
$ | 26,463 | ||
|
2013
|
20,405 | |||
|
2014
|
20,619 | |||
|
2015
|
19,258 | |||
|
2016
|
20,625 | |||
|
2016 through 2021
|
112,041 |
The Plan’s assets are held in trust and were allocated as follows as of the June 30
measurement date for fiscal 2011 and 2010:
| 2011 | 2010 | |||||||
|
Equity securities
|
76 | % | 74 | % | ||||
|
Debt securities
|
24 | 25 | ||||||
|
Cash and receivables
|
— | 1 | ||||||
The general investment objectives of the Plan are to maximize returns through a diversified
investment portfolio in order to earn annualized returns that meet the long-term cost of funding
the Plan’s pension obligations while maintaining reasonable and prudent levels of risk. The target
rate of return on Plan assets is currently 8.5%, which represents the average rate of earnings
expected on the funds invested or to be invested to provide for the benefits included in the
benefit obligation. This assumption has been determined by combining expectations regarding future
rates of return for the investment portfolio along with the historical and expected distribution of
investments by asset class and the historical rates of return for each of those asset classes. The
mix of equity securities is typically diversified to obtain a blend of domestic and international
investments covering multiple industries. The Plan assets do not include any material investments
in Avnet common stock. The Plan’s investments in debt securities are also diversified across both
public and private fixed income securities. The Company’s current target allocation for the
investment portfolio is for equity securities, both domestic and international, to represent
approximately 76% of the portfolio with a policy for minimum investment in equity securities of 60%
of the portfolio and a maximum of 92%. The majority of the remaining portfolio of investments is
to be invested in fixed income securities.
As of June 30, 2011, the market value of plan assets by investment category was: U.S. Equity
($194.3 million); U.S. Bonds ($76.5 million); International Equity ($51.9 million) and cash and
receivables ($2.0 million). Asset values are Level 1 for all asset categories as the fair values
are based upon quoted market prices for identical assets. The pension assets were highly
diversified to reduce the potential risk of significant concentrations of credit risk.
11. Long-term leases
The Company leases many of its operating facilities and is also committed under lease
agreements for transportation and operating equipment. Rent expense charged to operations during
the last three years is as follows:
| Years Ended | ||||||||||||
| July 2, | July 3, | June 27, | ||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| (Thousands) | ||||||||||||
|
Buildings
|
$ | 78,371 | $ | 59,047 | $ | 58,213 | ||||||
|
Equipment
|
8,332 | 5,440 | 6,169 | |||||||||
|
|
||||||||||||
|
|
$ | 86,703 | $ | 64,487 | $ | 64,382 | ||||||
|
|
||||||||||||
61
Table of Contents
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The aggregate future minimum operating lease commitments, principally for buildings, in fiscal
2012 through 2016 and thereafter (through 2028), are as follows (in thousands):
|
2012
|
$ | 92,376 | ||
|
2013
|
73,517 | |||
|
2014
|
46,800 | |||
|
2015
|
28,933 | |||
|
2016
|
20,560 | |||
|
Thereafter
|
42,421 | |||
|
|
||||
|
Total
|
$ | 304,607 | ||
|
|
||||
The preceding table includes operating lease commitments that have been reserved for as part
of the Company’s restructuring activities (see Note 17).
12. Stock-based compensation plans
The Company measures all share-based payments, including grants of employee stock options, at
fair value and recognizes related expense in the consolidated statement of operations over the
service period (generally the vesting period). During fiscal 2011, 2010, 2009, the Company
expensed $28,931,000, $28,363,000 and $18,269,000, respectively, for all stock-based compensation
awards.
In
August 2011, the Board of Directors approved the repurchase of up to
an aggregate of $500 million of shares of the Company’s common
stock through a share repurchase program.
Stock plan
The Company currently has one stock compensation plan pursuant to which it can issue new
awards. The 2010 Stock Compensation Plan (“2010 Plan”) was approved by the shareholders in fiscal
2011. The 2010 Plan has a termination date of November 4, 2020 and 6,694,816 shares were available
for grant at July 2, 2011. At July 2, 2011, the Company had 12,074,232 shares of common stock
reserved for stock option and stock incentive programs.
Stock options
Option grants under the 2010 Plan have a contractual life of ten years, vest 25% on each
anniversary of the grant date, commencing with the first anniversary, and provide for a minimum
exercise price of 100% of fair market value at the date of grant. Compensation expense associated
with stock options during fiscal 2011, 2010 and 2009 were $3,499,000, $3,558,000 and $4,245,000,
respectively.
The fair value of options granted is estimated on the date of grant using the Black-Scholes
model based on the assumptions in the following table. The assumption for the expected term is
based on evaluations of historical and expected future employee exercise behavior. The risk-free
interest rate is based on the U.S. Treasury rates at the date of grant with maturity dates
approximately equal to the expected term at the grant date. The historical volatility of Avnet’s
stock is used as the basis for the volatility assumption.
| Years Ended | ||||||||||||
| July 2, | July 3, | June 27, | ||||||||||
| 2011 | 2010 | 2009 | ||||||||||
|
Expected term (years)
|
6.0 | 6.0 | 5.75 | |||||||||
|
Risk-free interest rate
|
1.8 | % | 3.0 | % | 3.4 | % | ||||||
|
Weighted average volatility
|
33.7 | % | 34.3 | % | 30.7 | % | ||||||
|
Dividend yield
|
— | — | — | |||||||||
62
Table of Contents
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following is a summary of the changes in outstanding options for fiscal 2011:
| Weighted | ||||||||||||
| Weighted | Average | |||||||||||
| Average | Remaining | |||||||||||
| Exercise | Contractual | |||||||||||
| Shares | Price | Life | ||||||||||
|
Outstanding at July 3, 2010
|
3,530,118 | $ | 21.06 | 56 Months | ||||||||
|
Granted
|
382,612 | $ | 24.41 | 109 Months | ||||||||
|
Exercised
|
(751,396 | ) | $ | 18.69 | 20 Months | |||||||
|
Forfeited or expired
|
(102,119 | ) | $ | 29.35 | 18 Months | |||||||
|
|
||||||||||||
|
Outstanding at July 2, 2011
|
3,059,215 | $ | 21.79 | 59 Months | ||||||||
|
|
||||||||||||
|
Exercisable at July 2, 2011
|
2,139,921 | $ | 19.99 | 42 Months | ||||||||
|
|
||||||||||||
The weighted-average grant-date fair values of stock options granted during fiscal 2011, 2010,
and 2009 were $8.72, $9.58 and $10.21, respectively. There were no intrinsic values of share
options outstanding or exercisable at July 2, 2011 and July 3, 2010. The total intrinsic values of
share options exercised during fiscal 2009 was $3,000.
The following is a summary of the changes in non-vested stock options for the fiscal year
ended July 2, 2011:
| Weighted | ||||||||
| Average | ||||||||
| Grant-Date | ||||||||
| Shares | Fair Value | |||||||
|
Non-vested stock options at July 3, 2010
|
881,556 | $ | 10.40 | |||||
|
Granted
|
382,612 | $ | 8.72 | |||||
|
Vested
|
(330,200 | ) | $ | 10.37 | ||||
|
Forfeited
|
(14,674 | ) | $ | 11.67 | ||||
|
|
||||||||
|
Non-vested stock options at July 2, 2011
|
919,294 | $ | 9.69 | |||||
|
|
||||||||
As of July 2, 2011, there was $8,910,000 of total unrecognized compensation cost related to
non-vested stock options, which is expected to be recognized over a weighted-average period of 3.2
years. The total fair values of shares vested during fiscal 2011, 2010 and 2009 were $3,425,000,
$3,293,000, $5,555,000, respectively.
Cash received from option exercises during fiscal 2011, 2010 and 2009 totaled $3,506,000,
$4,134,000, and $563,000, respectively. The impact of these cash receipts is included in “Other,
net” in financing activities in the accompanying consolidated statements of cash flows.
Incentive shares
Delivery of incentive shares, and the associated compensation expense, is spread equally over
a five-year period and is subject to the employee’s continued employment by the Company. As of July
2, 2011, 1,414,784 shares previously awarded have not yet been delivered. Compensation expense
associated with this program was $17,008,000, $14,614,000 and $14,883,000 for fiscal years 2011,
2010 and 2009, respectively.
63
Table of Contents
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following is a summary of the changes in non-vested incentive shares for the fiscal year
ended July 2, 2011:
| Weighted | ||||||||
| Average | ||||||||
| Grant-Date | ||||||||
| Shares | Fair Value | |||||||
|
Non-vested incentive shares at July 3, 2010
|
1,258,054 | $ | 26.57 | |||||
|
Granted
|
817,965 | $ | 25.40 | |||||
|
Vested
|
(623,333 | ) | $ | 25.53 | ||||
|
Forfeited
|
(37,902 | ) | $ | 26.24 | ||||
|
|
||||||||
|
Non-vested incentive shares at July 2, 2011
|
1,414,784 | $ | 26.47 | |||||
|
|
||||||||
As of July 2, 2011, there was $33,961,000 of total unrecognized compensation cost related to
non-vested incentive shares, which is expected to be recognized over a weighted-average period of
2.7 years. The total fair values of shares vested during fiscal 2011, 2010 and 2009 were
$15,916,000, $14,301,000, $12,588,000, respectively.
Performance shares
Eligible employees, including Avnet’s executive officers, may receive a portion of their
long-term equity-based incentive compensation through the performance share program, which allows
for the award of shares of stock against performance-based criteria (“Performance Share Program”).
The Performance Share Program provides for the issuance to each grantee of a number of shares of
Avnet’s common stock at the end of a three-year period based upon the Company’s achievement of
performance goals established by the Compensation Committee of the Board of Directors for each
three-year period. For the Performance Share Program granted in fiscal 2009, the performance goals
were initially based upon a three-year cumulative increase in the Company’s absolute economic
profit, as defined, over the prior three-year period and the increase in the Company’s economic
profit relative to the increase in the economic profit of a group of specific technology companies.
During fiscal 2010, these performance goals were modified to eliminate the absolute economic profit
goal; in addition, the fiscal 2009 program was modified to limit the percentage of performance
stock units vesting to a maximum of 100%.
For the Performance Share Program granted in fiscal 2011 and 2010, the performance goals are
based upon a three-year cumulative increase in the Company’s economic profit relative to the
increase in the economic profit of a group of specific technology companies.
During fiscal 2011, 2010 and 2009, the Company granted 380,200, 242,390 and 246,650
performance shares, respectively, to be awarded to participants in the Performance Share Program,
of which 22,530 cumulatively have been forfeited. For the Performance Share Program granted in
fiscal 2011 and 2010, the actual amount of performance shares issued at the end of the three-year
period is determined based upon the level of achievement of the defined performance goals and can
range from 0% to 200% of the initial award. As previously mentioned, the Performance Share Program
granted in fiscal 2009 was limited to 100% of the initial award. The Company anticipates issuing
227,285 shares in the first quarter of fiscal 2012 based upon the goals achieved during the
three-year performance period which ended July 2, 2011. During fiscal 2011 and 2010, the Company
recognized compensation expense associated with the Performance Share Programs of $7,374,000 and
$9,171,000, respectively. During fiscal 2009, the Company recorded a credit of $1,819,000 in
selling, general and administrative expenses associated with the Performance Share Programs based
upon actual performance under the 2007 Performance Share Program and based upon the probability
assessment of the remaining plans.
Outside director equity compensation
Non-employee directors are awarded shares equal to a fixed dollar amount of Avnet common stock
upon their re-election each year, as part of their director compensation package. Directors may
elect to receive this compensation in the form of common stock or they may elect to defer their
compensation to be paid in common stock at a later date. During fiscal 2011, 2010 and 2009,
compensation cost associated with the outside director stock bonus plan was $1,050,000, $1,020,000,
$960,000, respectively.
64
Table of Contents
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Employee stock purchase plan
The Company has an Employee Stock Purchase Plan (“ESPP”) under the terms of which eligible
employees of the Company are offered options to purchase shares of Avnet common stock at a price
equal to 95% of the fair market value on the last day of each monthly offering period. Based on the
terms of the ESPP, Avnet is not required to record expense in the consolidated statements of
operations related to the ESPP.
The Company has a policy of repurchasing shares on the open market to satisfy shares purchased
under the ESPP, and expects future repurchases during fiscal 2012 to be similar to the number of
shares repurchased during fiscal 2011, based on current estimates of participation in the program.
During fiscal 2011, 2010 and 2009, there were 62,329, 67,168 and 100,206 shares, respectively, of
common stock issued under the ESPP program.
13. Commitments and contingencies
From time to time, the Company may become a party to, or otherwise involved in other pending
and threatened litigation, tax, environmental and other matters arising in the ordinary course of
conducting its business. Management does not anticipate that any contingent matters will have a
material adverse effect on the Company’s financial condition, liquidity or results of operations.
14. Earnings per share
Basic earnings per share is computed based on the weighted average number of common shares
outstanding and excludes any potential dilution. Diluted earnings per share reflect potential
dilution from the exercise or conversion of securities into common stock.
| Years Ended | ||||||||||||
| July 2, | July 3, | June 27, | ||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| (Thousands, except per share data) | ||||||||||||
|
Numerator:
|
||||||||||||
|
Net income (loss) for basic and diluted earnings per share
|
$ | 669,069 | $ | 410,370 | $ | (1,129,712 | ) | |||||
|
|
||||||||||||
|
|
||||||||||||
|
Denominator:
|
||||||||||||
|
Weighted average common shares for basic earnings (loss) per share
|
152,481 | 151,629 | 150,898 | |||||||||
|
Net effect of dilutive stock options and performance share awards
|
1,856 | 1,464 | — | |||||||||
|
|
||||||||||||
|
Weighted average common shares for diluted earnings per share
|
154,337 | 153,093 | 150,898 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Basic earnings (loss) per share
|
$ | 4.39 | $ | 2.71 | $ | (7.49 | ) | |||||
|
|
||||||||||||
|
Diluted earnings (loss) per share
|
$ | 4.34 | $ | 2.68 | $ | (7.49 | ) | |||||
|
|
||||||||||||
Options to purchase 238,000 and 700,000 shares of the Company’s stock were excluded from the
calculations of diluted earnings per shares in fiscal 2011 and 2010, respectively, because the
exercise price for those options was above the average market price of the Company’s stock during
those periods. Inclusion of these options in the diluted earnings per share calculation would have
had an anti-dilutive effect.
For fiscal 2009, dilutive effects of stock options, stock awards and shares issuable upon
conversion of the Company’s 2% Convertible Debentures were excluded from the computation of
earnings per diluted share because the Company recognized a net loss and inclusion of these items
would have had an anti-dilutive effect. The Convertible Debentures were repaid in March 2009.
65
Table of Contents
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
15. Additional cash flow information
Other non-cash and reconciling items consist of the following:
| Years Ended | ||||||||||||
| July 2, | July 3, | June 27, | ||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| (Thousands) | ||||||||||||
|
Provision for doubtful accounts
|
$ | 39,255 | $ | 33,825 | $ | 32,777 | ||||||
|
Periodic pension (income) costs (Note 10)
|
17,295 | (13,586 | ) | 10,166 | ||||||||
|
Other, net
|
296 | (4,854 | ) | (4,529 | ) | |||||||
|
|
||||||||||||
|
Total
|
$ | 56,846 | $ | 15,385 | $ | 38,414 | ||||||
|
|
||||||||||||
Interest and income taxes paid during the last three years were as follows:
| Years Ended | ||||||||||||
| July 2, | July 3, | June 27, | ||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| (Thousands) | ||||||||||||
|
Interest
|
$ | 91,946 | $ | 60,556 | $ | 66,895 | ||||||
|
Income taxes
|
$ | 158,372 | $ | 92,565 | $ | 126,010 | ||||||
Non-cash activity during fiscal 2011 included amounts recorded through comprehensive income
and, therefore, are not included in the consolidated statement of cash flows. Fiscal 2011 included
an adjustment to pension liabilities (including non-U.S. pension liabilities) of $31,987,000 which
was recorded net of related deferred tax benefit of $12,022,000 in other comprehensive income (see
Notes 4 and 10). Other non-cash activities included assumed debt of $420,259,000 and assumed
liabilities of $509,812,000 as a result of the acquisitions completed in fiscal 2011 (see Note 2).
Non-cash activity during fiscal 2010 included amounts recorded through comprehensive income
and, therefore, are not included in the consolidated statement of cash flows. Fiscal 2010 included
an adjustment to increase pension liabilities (including non-U.S. pension liabilities) of
$50,502,000 which was recorded net of related deferred tax benefit of $19,287,000 in other
comprehensive income (see Notes 4 and 10). Other non-cash activities included assumed debt of
$5,858,000 and assumed liabilities of $35,913,000 as a result of the acquisitions completed in
fiscal 2010 (see Note 2).
Non-cash activity during fiscal 2009 included amounts recorded through comprehensive income
and, therefore, are not included in the consolidated statement of cash flows. Fiscal 2009 included
an adjustment to increase pension liabilities (including non-U.S. pension liabilities) of
$42,948,000 which was recorded net of related deferred tax benefit of $16,767,000 in other
comprehensive income (see Notes 4 and 10). Other non-cash activities included assumed debt of
$146,831,000 and assumed liabilities of $261,434,000 as a result of the acquisitions completed in
fiscal 2009 (see Note 2).
16. Segment information
Electronics Marketing and Technology Solutions are the overall segments upon which management
primarily evaluates the operations of the Company and upon which management bases its operating
decisions. Therefore, the segment data that follows reflects these two segments.
EM markets and sells semiconductors and interconnect, passive and electromechanical devices
and embedded products. EM markets and sells its products and services to a diverse customer base
serving many end-markets including automotive, communications, computer hardware and peripheral,
industrial and manufacturing, medical equipment, military 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, including supply-chain
management, engineering design, inventory replenishment systems, connector and cable assembly and
semiconductor programming.
66
Table of Contents
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
TS markets and sells mid- to high-end servers, data storage, software, and the services
required to implement these products and solutions to the value-added reseller channel. TS also
focuses on the worldwide original equipment manufacturers (“OEM”) market for computing technology,
system integrators and non-PC OEMs that require embedded systems and solutions including
engineering, product prototyping, integration and other value-added services.
| Years Ended | ||||||||||||
| July 2, | July 3, | June 27, | ||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| (Millions) | ||||||||||||
|
Sales:
|
||||||||||||
|
Electronics Marketing
|
$ | 15,066.2 | $ | 10,966.8 | $ | 9,192.8 | ||||||
|
Technology Solutions
|
11,468.2 | 8,193.4 | 7,037.1 | |||||||||
|
|
||||||||||||
|
|
$ | 26,534.4 | $ | 19,160.2 | $ | 16,229.9 | ||||||
|
|
||||||||||||
|
Operating income (loss):
|
||||||||||||
|
Electronics Marketing
|
$ | 832.5 | $ | 491.6 | $ | 354.5 | ||||||
|
Technology Solutions
|
286.7 | 251.7 | 201.4 | |||||||||
|
Corporate
|
(112.0 | ) | (82.3 | ) | (64.5 | ) | ||||||
|
|
||||||||||||
|
|
1,007.2 | 661.0 | 491.4 | |||||||||
|
Impairment charges (Note 6)
|
— | — | (1,411.1 | ) | ||||||||
|
Restructuring, integration and other charges (Note 17)
|
(77.2 | ) | (25.4 | ) | (99.3 | ) | ||||||
|
|
||||||||||||
|
|
$ | 930.0 | $ | 635.6 | $ | (1,019.0 | ) | |||||
|
|
||||||||||||
|
Assets:
|
||||||||||||
|
Electronics Marketing
|
$ | 5,890.9 | $ | 4,441.8 | $ | 3,783.4 | ||||||
|
Technology Solutions
|
3,765.2 | 2,553.8 | 2,036.8 | |||||||||
|
Corporate
|
249.5 | 786.8 | 453.3 | |||||||||
|
|
||||||||||||
|
|
$ | 9,905.6 | $ | 7,782.4 | $ | 6,273.5 | ||||||
|
|
||||||||||||
|
Capital expenditures:
|
||||||||||||
|
Electronics Marketing
|
$ | 69.8 | $ | 30.1 | $ | 61.1 | ||||||
|
Technology Solutions
|
57.4 | 17.2 | 38.5 | |||||||||
|
Corporate
|
21.5 | 19.6 | 10.6 | |||||||||
|
|
||||||||||||
|
|
$ | 148.7 | $ | 66.9 | $ | 110.2 | ||||||
|
|
||||||||||||
|
Depreciation & amortization expense:
|
||||||||||||
|
Electronics Marketing
|
$ | 28.3 | $ | 24.6 | $ | 26.8 | ||||||
|
Technology Solutions
|
30.0 | 15.7 | 18.3 | |||||||||
|
Corporate
|
23.1 | 20.3 | 20.7 | |||||||||
|
|
||||||||||||
|
|
$ | 81.4 | $ | 60.6 | $ | 65.8 | ||||||
|
|
||||||||||||
|
Sales, by geographic area, are as follows:
|
||||||||||||
|
Americas
(1)
|
$ | 11,518.5 | $ | 8,367.3 | $ | 7,572.2 | ||||||
|
EMEA
(2)
|
8,393.4 | 5,948.3 | 5,268.4 | |||||||||
|
Asia/Pacific
(3)
|
6,622.5 | 4,844.6 | 3,389.3 | |||||||||
|
|
||||||||||||
|
|
$ | 26,534.4 | $ | 19,160.2 | $ | 16,229.9 | ||||||
|
|
||||||||||||
|
Property, plant and equipment, net, by geographic area:
|
||||||||||||
|
Americas
(4)
|
$ | 242.5 | $ | 182.2 | $ | 183.9 | ||||||
|
EMEA
(5)
|
150.6 | 98.5 | 101.3 | |||||||||
|
Asia/Pacific
|
26.1 | 21.9 | 20.5 | |||||||||
|
|
||||||||||||
|
|
$ | 419.2 | $ | 302.6 | $ | 305.7 | ||||||
|
|
||||||||||||
67
Table of Contents
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| (1) |
Includes sales in the United States of $10.0 billion, $7.6
billion and $6.8 billion for fiscal year 2011, 2010 and
2009, respectively.
|
|
| (2) |
Includes sales in Germany and the United Kingdom of $3.1
billion and $1.7 billion, respectively, for fiscal 2011.
Includes sales in Germany and the United Kingdom of $2.1
billion and $1.1 billion, respectively, for fiscal 2010.
Includes sales in Germany and the United Kingdom of $1.8
billion and $1.0 billion, respectively, for fiscal 2009.
|
|
| (3) |
Includes sales of $1.8 billion, $2.4 billion and $1.2
billion in Taiwan, China (including Hong Kong) and
Singapore, respectively, for fiscal 2011. Includes sales
of $1.3 billion, $2.0 billion and $1.0 billion in Taiwan,
China (including Hong Kong) and Singapore, respectively,
for fiscal 2010. Includes sales of $966.9 million, $1.3
billion and $752.9 million in Taiwan, China (including
Hong Kong) and Singapore, respectively, for fiscal 2009.
|
|
| (4) |
Includes property, plant and equipment, net, of $231.3
million, $178.2 million and $179.6 million in the United
States for fiscal 2011, 2010 and 2009, respectively.
|
|
| (5) |
Includes property, plant and equipment, net of $92.8
million, $23.4 million, and $16.4 million in Germany,
Belgium and the United Kingdom, respectively, for fiscal
2011. Fiscal 2010 includes property, plant and equipment,
net, of $48.0 million in Germany, $20.4 million in Belgium
and $13.4 million in the United Kingdom. Fiscal 2009
includes property, plant and equipment, net, of $41.4
million in Germany, $24.2 million, in Belgium and $26.8
million in the United Kingdom.
|
The Company manages its business based upon the operating results of its two operating groups
before impairment charges (see Note 6) and restructuring, integration and other charges (see Note
17). In fiscal 2011, 2010 and 2009, presented above, the unallocated pre-tax impairment charges and
restructuring, integration and other items related to EM and TS, respectively, were $27,879,000 and
$38,146,000 in fiscal 2011, $14,701,000 and $10,579,000 in fiscal 2010 and $1,116,335,000 and
$389,561,000 in fiscal 2009, respectively. The remaining restructuring, integration and other
items in each year relate to corporate activities.
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 | ||||||||||||
| July 2, | July 3, | June 27, | ||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| (Millions) | ||||||||||||
|
Semiconductors
|
$ | 14,149.3 | $ | 10,098.7 | $ | 8,324.0 | ||||||
|
Computer products
|
10,284.6 | 7,302.8 | 6,393.4 | |||||||||
|
Connectors
|
1,041.4 | 841.4 | 735.2 | |||||||||
|
Passives, electromechanical and other
|
1,059.1 | 917.3 | 777.3 | |||||||||
|
|
||||||||||||
|
|
$ | 26,534.4 | $ | 19,160.2 | $ | 16,229.9 | ||||||
|
|
||||||||||||
68
Table of Contents
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
17. Restructuring, integration and other charges
Fiscal 2011
During fiscal 2011, the Company incurred charges related primarily to the acquisition and
integration activities associated with acquired businesses (see Note 2) and also recorded credits
related to prior restructuring reserves and acquisition adjustments.
| Year Ended | ||||
| July 2, 2011 | ||||
| (Thousands) | ||||
|
Restructuring charges
|
$ | 47,763 | ||
|
Integration costs
|
25,068 | |||
|
Acquisition costs
|
15,597 | |||
|
Reversal of excess prior year restructuring reserves
|
(6,076 | ) | ||
|
Prior year acquisition adjustments
|
(5,176 | ) | ||
|
|
||||
|
Pre-tax restructuring, integration and other charges
|
$ | 77,176 | ||
|
|
||||
|
After tax restructuring, integration and other charges
|
$ | 56,169 | ||
|
|
||||
|
Restructuring, integration and other charges per share on a diluted basis
|
$ | 0.36 | ||
|
|
||||
The activity related to the restructuring reserves established during fiscal 2011 is presented
in the following table:
| Severance | Facility | |||||||||||||||
| Reserves | Exit Costs | Other | Total | |||||||||||||
| (Thousands) | ||||||||||||||||
|
Fiscal 2011 pre-tax charges
|
$ | 28,584 | $ | 17,331 | $ | 1,848 | $ | 47,673 | ||||||||
|
Cash payments
|
(19,142 | ) | (5,651 | ) | (787 | ) | (25,580 | ) | ||||||||
|
Non-cash write downs
|
— | (3,278 | ) | (51 | ) | (3,329 | ) | |||||||||
|
Adjustments
|
(293 | ) | (349 | ) | (223 | ) | (865 | ) | ||||||||
|
Other, principally foreign currency translation
|
654 | 241 | 251 | 1,146 | ||||||||||||
|
|
||||||||||||||||
|
Balance at July 2, 2011
|
$ | 9,803 | $ | 8,294 | $ | 1,038 | $ | 19,135 | ||||||||
|
|
||||||||||||||||
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. 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/Pac region. As of July 2, 2011,
management expects the majority of the remaining severance reserves to be utilized by the end of
fiscal 2012 and the remaining facility exit cost reserves to be utilized by the end of fiscal 2014.
Integration costs included professional fees associated with legal and IT consulting, facility
moving costs, travel, meeting, marketing and communication costs that were incrementally incurred
as a result of the integration efforts of acquired businesses. Also included in integration costs
are incremental salary and employee benefit costs, primarily of the acquired businesses’ personnel
who were retained by Avnet for extended periods following the close of the acquisitions solely to
assist in the integration of the acquired business’ 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 costs incurred during fiscal 2011 related primarily to professional fees for
advisory and broker services, legal and accounting due diligence, and other legal costs associated
with the acquisition.
During fiscal 2011, the Company recorded credits to restructuring, integration and other
charges related to (i) the reversal of restructuring reserves established in prior years that were
deemed to be 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, which were credited to the consolidated statement
of operations rather than to goodwill because the associated goodwill was impaired in fiscal 2009
(see Notes 2 and 6).
69
Table of Contents
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Fiscal 2010
During fiscal 2010, the Company recognized restructuring, integration and other charges
related to remaining cost reduction actions announced in fiscal 2009 which were taken in response
to market conditions as well as integration costs associated with acquired businesses in addition
to a value-added tax exposure and acquisition-related costs partially offset by a credit related to
prior restructuring reserves.
| Year Ended | ||||
| July 3, 2010 | ||||
| (Thousands) | ||||
|
Restructuring charges
|
$ | 15,991 | ||
|
Integration costs
|
2,931 | |||
|
Value-added tax exposure
|
6,477 | |||
|
Other
|
3,261 | |||
|
Reversal of excess restructuring reserves recorded in prior periods
|
(3,241 | ) | ||
|
|
||||
|
Pre-tax restructuring, integration and other charges
|
$ | 25,419 | ||
|
|
||||
|
After tax restructuring, integration and other charges
|
$ | 18,789 | ||
|
|
||||
|
Restructuring, integration and other charges per share on a diluted basis
|
$ | 0.12 | ||
|
|
||||
Restructuring charges incurred in fiscal 2010 consisted of severance, facility exit costs and
other charges. Severance charges were related to personnel reductions of over 150 employees in
administrative, finance and sales functions in connection with the cost reduction actions in all
three regions. Facility exit costs consisted of lease liabilities and fixed asset write-downs
associated with seven vacated facilities in the Americas, one in EMEA and four in the Asia/Pac
region. Other charges consisted primarily of contractual obligations with no on-going benefit to
the Company.
During fiscal 2010, the Company incurred integration costs for professional fees, facility
moving costs and travel, meeting, marketing and communication costs that were incrementally
incurred as a result of the integration efforts of previously acquired businesses.
Also during fiscal 2010, the Company recognized a charge for a value-added tax exposure in
Europe related to an audit of prior years and other charges related primarily to
acquisition-related costs which would have been capitalized under prior accounting rules. In
addition, the Company recognized a credit to reverse restructuring reserves which were determined
to be no longer necessary.
The fiscal 2011 activity related to the restructuring charges is presented in the following
table:
| Severance | Facility | |||||||||||||||
| Reserves | Exit Costs | Other | Total | |||||||||||||
| (Thousands) | ||||||||||||||||
|
Balance at July 3, 2010
|
$ | 539 | $ | 1,405 | $ | 1,836 | $ | 3,780 | ||||||||
|
Cash payments
|
(400 | ) | (279 | ) | (443 | ) | (1,122 | ) | ||||||||
|
Adjustments
|
(144 | ) | (903 | ) | 421 | (626 | ) | |||||||||
|
Other, principally foreign currency translation
|
22 | 9 | 152 | 183 | ||||||||||||
|
|
||||||||||||||||
|
Balance at July 2, 2011
|
$ | 17 | $ | 232 | $ | 1,966 | $ | 2,215 | ||||||||
|
|
||||||||||||||||
As of July 2, 2011, management expects the majority of the
remaining severance and other reserves to be utilized by the end of fiscal 2012 and the remaining facility exit cost reserves to be
utilized by the end of fiscal 2013.
70
Table of Contents
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Fiscal 2009
In response to the decline in sales and gross profit margin due to weaker market conditions,
the Company initiated significant cost reduction actions during fiscal 2009 in order to realign its
expense structure with market conditions. As a result, the Company incurred restructuring,
integration and other charges during fiscal 2009 related to the cost reductions as well as
integration costs associated with recently acquired businesses as presented in the following table.
| Year Ended | ||||
| June 27, 2009 | ||||
| (Thousands) | ||||
|
Restructuring charges
|
$ | 84,976 | ||
|
Integration costs
|
11,160 | |||
|
Reversal of excess prior year restructuring reserves
|
(2,514 | ) | ||
|
Prior year acquisition adjustments
|
(1,201 | ) | ||
|
Loss on investment
|
3,091 | |||
|
Incremental amortization
|
3,830 | |||
|
|
||||
|
Pre-tax restructuring, integration and other charges
|
$ | 99,342 | ||
|
|
||||
|
After tax restructuring, integration and other charges
|
$ | 65,310 | ||
|
|
||||
|
Restructuring, integration and other charges per share on a diluted basis
|
$ | 0.43 | ||
|
|
||||
Restructuring charges included severance, facility exit costs and other charges. Severance
charges related to personnel reductions of approximately 1,900 employees in administrative, finance
and sales functions in connection with the cost reduction actions in all three regions of both
operating groups with employee reductions of approximately 1,400 in EM, 400 in TS and the remaining
from centralized support functions. Exit costs for vacated facilities related to 29 facilities in
the Americas, 13 in EMEA and three in Asia/Pac. Other charges included fixed asset write-downs and
contractual obligations with no on-going benefit to the Company. The Company also recorded a
reversal for severance, lease and other reserves that were deemed excessive and was credited to
restructuring, integration and other charges. Integration costs included professional fees,
facility moving costs, travel, meeting, marketing and communication costs that were incrementally
incurred as a result of the acquisition integration efforts. Other items recorded to
restructuring, integration and other charges included a net credit related to acquisition
adjustments for which the purchase allocation period had closed, a loss resulting from a decline in
the market value of certain small investments that the Company liquidated, and incremental
intangible asset amortization.
The following table presents the activity during fiscal 2011 related to restructuring reserves
established as part of this plan:
| Severance | Facility | |||||||||||||||
| Reserves | Exit Costs | Other | Total | |||||||||||||
| (Thousands) | ||||||||||||||||
|
Balance at July 3, 2010
|
$ | 1,920 | $ | 17,136 | $ | 1,634 | $ | 20,690 | ||||||||
|
Cash payments
|
(1,432 | ) | (7,551 | ) | (414 | ) | (9,397 | ) | ||||||||
|
Adjustments
|
(319 | ) | (4,161 | ) | (1,703 | ) | (6,183 | ) | ||||||||
|
Other, principally foreign currency translation
|
130 | 175 | 483 | 788 | ||||||||||||
|
|
||||||||||||||||
|
Balance at July 2, 2011
|
$ | 299 | $ | 5,599 | $ | — | $ | 5,898 | ||||||||
|
|
||||||||||||||||
As of July 2, 2011, management expects the majority of the remaining severance reserves to be
utilized by the end of fiscal 2012 and the remaining facility exit cost reserves to be utilized by
the end of fiscal 2015.
Fiscal 2008 and prior restructuring reserves
In fiscal 2008 and prior, the Company incurred
restructuring charges under four separate
restructuring plans of which two are remaining. As of July 2, 2011, the remaining reserves associated with these actions
totaled $801,000 which are expected to be fully utilized by the end of fiscal 2012.
71
Table of Contents
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
18. Summary of quarterly results
(unaudited):
| First | Second | Third | Fourth | |||||||||||||||||
| Quarter | Quarter | Quarter | Quarter | Year(a) | ||||||||||||||||
| (Millions, except per share amounts) | ||||||||||||||||||||
|
2011(b)
|
||||||||||||||||||||
|
Sales
|
$ | 6,182.4 | $ | 6,767.5 | $ | 6,672.4 | $ | 6,912.1 | $ | 26,534.4 | ||||||||||
|
Gross profit
|
723.1 | 773.2 | 786.6 | 824.9 | 3,107.8 | |||||||||||||||
|
Net income
|
138.2 | 141.0 | 151.0 | 238.8 | 669.1 | |||||||||||||||
|
Diluted earnings per share
|
0.90 | 0.91 | 0.98 | 1.54 | 4.34 | |||||||||||||||
|
2010(c)
|
||||||||||||||||||||
|
Sales
|
$ | 4,355.0 | $ | 4,834.5 | $ | 4,756.8 | $ | 5,213.8 | $ | 19,160.2 | ||||||||||
|
Gross profit
|
499.7 | 551.9 | 582.8 | 645.8 | 2,280.2 | |||||||||||||||
|
Net income
|
50.9 | 103.9 | 114.5 | 141.1 | 410.4 | |||||||||||||||
|
Diluted earnings per share
|
0.33 | 0.68 | 0.75 | 0.92 | 2.68 | |||||||||||||||
| (a) |
Quarters may not add to the year due to rounding.
|
|
| (b) |
First quarter of fiscal 2011 results were impacted by restructuring,
integration and other charges which totaled $28.1 million pre-tax,
$20.2 after tax and $0.13 per share on a diluted basis. Restructuring
charges consisted of severance costs, facility exit costs and other
charges resulting from acquisition related integration activities.
Integration costs included professional fees and salary and benefit
costs related primarily to the acquired businesses’ personnel retained
by the Company for extended periods to assist with integrations. Other
charges consisted of broker fees, professional fees for legal and
accounting and due diligence, and other related costs associated with
the Bell, Tallard and Unidux acquisitions. In addition, 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 connection with its
Unidux acquisition. Second quarter results were impacted by
restructuring, integration and other charges which totaled $29.1
million pre-tax, $20.8 million after tax and $0.14 per share on a
diluted basis incurred primarily in connection with the acquisitions
and integrations of acquired businesses. The Company also recorded a
reversal of $3.5 million pre-tax primary related to the reversal of
restructuring reserves established in prior years which were no longer
needed. Third quarter of fiscal 2011 results were impacted by
restructuring, integration and other charges which totaled $16.3
million pre-tax, $11.9 million after tax and $0.08 per share on a
diluted basis incurred primarily in connection with the acquisitions
and integrations of acquired businesses. In addition, the Company
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
investments in smaller technology start-up companies. Fourth quarter
of fiscal 2011 results were impacted by restructuring, integration and
other charges which totaled $7.3 million pre-tax, $5.8 million after
tax and $0.04 per share on a diluted basis. The Company also reversed
$3.6 million pre-tax, $2.5 million after tax and $0.02 per share on a
diluted basis for restructuring and purchase accounting reserves
determined not to be needed. In addition, fourth quarter results
included a tax benefit of $52.7 million, or $0.34 per share on a
diluted basis, primarily related to the release of a tax valuation
allowance for which the tax asset was determined to be realizable.
|
|
| (c) |
First quarter of fiscal 2010 results were impacted by restructuring,
integration and other charges which totaled $18.1 million pre-tax,
$13.2 million after tax and $0.09 per share on a diluted basis.
Restructuring charges consisted of severance costs, facility exit
costs, and fixed asset write-downs related to previously announced
cost reduction actions. The Company recognized a reversal of excess
prior year restructuring reserves and also recognized integration
costs associated with acquired businesses and other charges. In
addition, the Company recognized a net increase in taxes of $3.1
million and $0.02 per share on a diluted basis related an adjustment
for a prior year tax return and additional tax reserves, net of a
benefit from a favorable income tax audit settlement. Second quarter
results were impacted by a gain on the sale of assets of $5.5 million
pre-tax, $3.4 million after tax and $0.02 per share on a diluted basis
as a result of certain earn-out provisions associated with the earlier
sale of the Company’s equity investment in Calence LLC. Third quarter
of fiscal 2010 results were impacted by restructuring, integration and
other charges of $7.3 million pre-tax, $5.6 million after tax and
$0.04 per share on a diluted basis which included (i) $6.5 million
pre-tax for a value-added tax exposure in Europe related to an audit
of prior years, (ii) $2.1 million pre-tax related to
acquisition-related costs, and (iii) a credit of $1.3 million pre-tax
related to reversals of restructuring reserves no longer deemed
necessary. In addition, third quarter results were impacted by a gain
on the sale of assets of $3.2 million pre-tax, $1.9 million after tax
and $0.01 per share on a diluted basis as a result of a final earn-out
payment associated with the earlier sale of the Company’s equity
investment in Calence LLC and were impacted by a net tax benefit of
$2.3 million and $0.02 per share on a diluted basis related to
adjustments for a prior year tax return and a benefit from a favorable
income tax audit settlement partially offset by additional tax
reserves for existing tax positions.
|
72
Table of Contents
SCHEDULE II
AVNET, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Years Ended July 2, 2011, July 3, 2010 and June 27, 2009
Years Ended July 2, 2011, July 3, 2010 and June 27, 2009
| Column A | Column B | Column C | Column D | Column E | ||||||||||||||||
| Additions | ||||||||||||||||||||
| Balance at | Charged to | Charged to | Balance at | |||||||||||||||||
| Beginning | Costs and | Other Accounts — | Deductions — | End of | ||||||||||||||||
| Description | of Period | Expenses | Describe | Describe | Period | |||||||||||||||
| (Thousands) | ||||||||||||||||||||
|
Fiscal 2011
|
||||||||||||||||||||
|
Allowance for doubtful accounts
|
$ | 81,197 | $ | 39,255 | $ | — | $ | (12,713 | )(a) | $ | 107,739 | |||||||||
|
Valuation allowance on
foreign tax loss
carry-forwards (Note 9)
|
331,423 | (76,055 | )(b) | 55,404 | (c) | — | 310,772 | |||||||||||||
|
Fiscal 2010
|
||||||||||||||||||||
|
Allowance for doubtful accounts
|
85,477 | 33,825 | — | (38,105 | )(a) | 81,197 | ||||||||||||||
|
Valuation allowance on
foreign tax loss
carry-forwards (Note 9)
|
315,020 | (1,338 | ) | 17,741 | (d) | — | 331,423 | |||||||||||||
|
Fiscal 2009
|
||||||||||||||||||||
|
Allowance for doubtful accounts
|
76,690 | 32,777 | 2,841 | (e) | (26,831 | )(a) | 85,477 | |||||||||||||
|
Valuation allowance on
foreign tax loss
carry-forwards (Note 9)
|
344,034 | 5,697 | (34,711 | )(f) | — | 315,020 | ||||||||||||||
| (a) |
Uncollectible accounts written off.
|
|
| (b) |
Represents a reduction primarily due to the release of valuation allowance in EMEA, of which
$64,215,000 impacted the effective tax rate and $11,840,000 of which did not impact the effective tax rate because deferred taxes and income tax payables associated with the release of the valuation allowance were recorded which offset a portion of the benefit as a result of the release (see Note 9).
|
|
| (c) |
Primarily relates to the translation impact of changes in foreign currency exchange rates and acquired valuation allowances.
|
|
| (d) |
Includes the impact of deferred tax rate changes, the translation impact of changes in
foreign currency exchange rates and the increase of valuation allowance against associated
deferred tax benefits as it was determined the related operating tax loss carry-forward cannot
be utilized.
|
|
| (e) |
Includes allowance for doubtful accounts as a result of acquisitions.
|
|
| (f) |
Includes the impact of deferred tax rate changes and the translation impact of changes in
foreign currency exchange rates.
|
73
Table of Contents
INDEX TO EXHIBITS
| Exhibit | ||||
| Number | Exhibit | |||
|
|
||||
| 2.1 | * |
Agreement and Plan of Merger dated as of March 28, 2010, by and among Avnet, Inc., AVT Acquisition
Corp. and Bell Microproducts Inc. (incorporated herein by reference to the Company’s Current
Report on Form 8-K dated March 28, 2010, Exhibit 2.1).
|
||
|
|
||||
| 3.1 |
Restated Certificate of Incorporation of the Company (incorporated herein by reference to the
Company’s Current Report on Form 8-K dated
February 12, 2001, Exhibit 3(i)).
|
|||
|
|
||||
| 3.2 |
By-laws of the Company, effective August 10, 2007 (incorporated herein by reference to the
Company’s Current Report on Form 8-K dated August 15, 2007 Exhibit 3.1).
|
|||
|
|
||||
| 4.1 |
Indenture dated as of March 5, 2004, by and between the Company and JP Morgan Trust Company,
National Association (incorporated herein by reference to the Company’s Current Report on Form 8-K
dated March 8, 2004, Exhibit 4.1).
|
|||
|
|
||||
| 4.2 |
Officers’ Certificate dated August 19, 2005, establishing the terms of the 6.00% Notes due 2015
(incorporated herein by reference to the Company’s Current Report on Form 8-K dated August 19,
2005, Exhibit 4.2).
|
|||
|
|
||||
| 4.3 |
Officers’ Certificate dated September 12, 2006, establishing the terms of the 6.625% Notes due
2016 (incorporated herein by reference to the Company’s Current Report on Form 8-K dated September
12, 2006, Exhibit 4.2).
|
|||
|
|
||||
| 4.4 |
Officers’ Certificate dated March 7, 2007, establishing the terms of the 5 7/8% Notes due 2014
(incorporated herein by reference to the Company’s Current Report on Form 8-K dated March 7, 2007,
Exhibit 4.2).
|
|||
|
|
||||
| 4.5 |
Indenture dated as of June 22, 2010, between the Company and Wells Fargo Bank, National
Association, as Trustee, providing for the issuance of Debt Securities in one or more series
(incorporated herein by reference to the Company’s Current Report on Form 8-K dated June 22, 2010,
Exhibit 4.1).
|
|||
|
|
||||
| 4.6 |
Officers’ Certificate establishing the terms of the 5.875% Notes due 2020 (incorporated herein by
reference to the Company’s Current Report on Form 8-K dated June 22, 2010, Exhibit 4.2).
|
|||
|
|
||||
|
Note: The total amount of securities authorized under any other instrument that defines the rights
of holders of the Company’s long-term debt does not exceed 10% of the total assets of the Company
and its subsidiaries on a consolidated basis. Therefore, these instruments are not required to be
filed as exhibits to this Report. The Company agrees to furnish copies of such instruments to the
Commission upon request.
|
||||
|
|
||||
|
Executive Compensation Plans and Arrangements
|
||||
|
|
||||
| 10.1 |
2011 Amended and Restated Employment Agreement dated February 11, 2011 between the Company and Roy
Vallee (incorporated herein by reference to the Company’s Current Report on Form 8-K dated
February 14, 2011, Exhibit 10.1).
|
|||
|
|
||||
| 10.2 |
2011 Amended and Restated Employment Agreement dated February 11, 2011 between the Company and
Richard Hamada (incorporated herein by reference to the Company’s Current Report on Form 8-K dated
February 14, 2011, Exhibit 10.2).
|
|||
|
|
||||
| 10.3 |
Form of Change of Control Agreement dated February 11, 2011 between the Company and each of Roy
Vallee and Richard Hamada (incorporated herein by reference to the Company’s Current Report on
Form 8-K dated February 14, 2011, Exhibit 10.3).
|
|||
|
|
||||
| 10.4 |
Form of Employment Agreement dated December 19, 2008 between the Company and each of its Executive
Officers (other than Roy Vallee and Richard Hamada) (incorporated herein by reference to the
Company’s Current Report on Form 8-K dated December 22, 2008, Exhibit 10.2).
|
|||
|
|
||||
| 10.5 |
Form of Change of Control Agreement dated December 19, 2008 between the Company and each of the
Executive Officers (other than Roy Vallee and Richard Hamada) (incorporated herein by reference to
the Company’s Current Report on Form 8-K dated December 22, 2008, Exhibit 10.3).
|
|||
74
Table of Contents
| Exhibit | ||||
| Number | Exhibit | |||
|
|
||||
| 10.6 |
Avnet 1995 Stock Option Plan (incorporated herein by reference to the Company’s Current Report on
Form 8-K dated February 12, 1996, Exhibit 10).
|
|||
|
|
||||
| 10.7 |
Avnet 1996 Incentive Stock Option Plan (incorporated herein by reference to the Company’s
Registration Statement on Form S-8, Registration No. 333-17271, Exhibit 99).
|
|||
|
|
||||
| 10.8 |
Amended and Restated Avnet 1997 Stock Option Plan (incorporated herein by reference to the
Company’s Current Report on Form 8-K dated August 29, 2006, Exhibit 10.1).
|
|||
|
|
||||
| 10.9 |
Retirement Plan for Outside Directors of Avnet, Inc., (Amended and Restated Effective Generally as
of January 1, 2009) (incorporated herein by reference to the Company’s Current Report on Form 8-K
dated August 13, 2010, Exhibit 10.1).
|
|||
|
|
||||
| 10.10 |
Avnet, Inc. Deferred Compensation Plan for Outside Directors (Amended and Restated Effective
Generally as of January 1, 2009) (incorporated herein by reference to the Company’s Current Report
on Form 8-K dated August 13, 2010, Exhibit 10.2).
|
|||
|
|
||||
| 10.11 |
Avnet Supplemental Executive Officers’ Retirement Plan (Amended and Restated Effective Generally
as of January 1, 2009) (incorporated herein by reference to the Company’s Current Report on Form
8-K dated August 13, 2010, Exhibit 10.3).
|
|||
|
|
||||
| 10.12 |
Avnet 1999 Stock Option Plan (incorporated herein by reference to the Company’s Current Report on
Form 8-K dated August 29, 2006 Exhibit 10.2).
|
|||
|
|
||||
| 10.13 |
Avnet, Inc. Executive Incentive Plan (incorporated herein by reference to Appendix A to the
Company’s Proxy Statement dated September 28, 2007).
|
|||
|
|
||||
| 10.14 |
Avnet, Inc. 2003 Stock Compensation Plan (Amended and Restated Effective Generally as of January
1, 2009) (incorporated herein by reference to the Company’s Current Report on Form 8-K dated
August 13, 2010, Exhibit 10.4).
|
|||
|
|
||||
| 10.15 |
Avnet, Inc. 2003 Stock Compensation Plan:
|
|||
|
(a) Form of nonqualified stock option agreement
|
||||
|
(b) Form of nonqualified stock option agreement for non-employee director
|
||||
|
(c) Form of incentive stock option agreement
|
||||
|
(d) Form of performance stock unit term sheet
|
||||
|
|
||||
|
(incorporated herein by reference to the Company’s Current Report on Form 8-K dated August 29,
2006, Exhibit 10.3).
|
||||
|
|
||||
| 10.16 |
Avnet, Inc. 2006 Stock Compensation Plan (Amended and Restated Effective Generally as of January
1, 2009) (incorporated herein by reference to the Company’s Current Report on Form 8-K dated
August 13, 2010, Exhibit 10.5).
|
|||
|
|
||||
| 10.17 |
Avnet, Inc. 2006 Stock Compensation Plan:
|
|||
|
(a) Form of nonqualified stock option agreement
|
||||
|
(b) Form of nonqualified stock option agreement for non-employee director
|
||||
|
(c) Form of performance stock unit term sheet (revised effective August 13, 2009 by (f) below)
|
||||
|
(d) Form of incentive stock option agreement
|
||||
|
(e) Long Term Incentive Letter
|
||||
|
|
||||
|
(incorporated herein by reference to the Company’s Current Report on Form 8-K dated May 16, 2007,
Exhibit 99.1).
|
||||
|
|
||||
|
(f) Form of performance stock unit term sheet (incorporated herein by reference to the Company’s
Current Report on Form 8-K dated August 19, 2009, Exhibit 99.1).
|
||||
|
|
||||
| 10.18 |
Avnet, Inc. 2010 Stock Compensation Plan (incorporated herein by reference to Exhibit 10.1 to the
Company’s Registration Statement on Form S-8, Registration No. 333-171291).
|
|||
75
Table of Contents
| Exhibit | ||||
| Number | Exhibit | |||
|
|
||||
| 10.19 |
Avnet, Inc. 2010 Stock Compensation Plan:
|
|||
|
(a) Form of nonqualified stock option agreement
|
||||
|
(b) Form of incentive stock option agreement
|
||||
|
(c) Form of performance stock unit term sheet
|
||||
|
(d) Form of Long Term Incentive Letter
|
||||
|
|
||||
|
(incorporated herein by reference to the Company’s Current Report on Form 8-K dated January 3,
2011, Exhibit 10.1).
|
||||
|
|
||||
| 10.20 |
Avnet Deferred Compensation Plan (Amended and Restated Effective Generally as of January 1, 2009)
(incorporated herein by reference to the Company’s Current Report on Form 8-K dated August 13,
2010, Exhibit 10.6).
|
|||
|
|
||||
| 10.21 | ** |
Amendment No. 1 to Avnet Deferred Compensation Plan (Amended and Restated Effective Generally as
of January 1, 2009).
|
||
|
|
||||
| 10.22 |
Form of Indemnity Agreement. The Company enters into this form of agreement with each of its
directors and officers (incorporated herein by reference to the Company’s Quarterly Report on Form
10-Q dated May 8, 2006, Exhibit 10.1).
|
|||
|
|
||||
| 10.23 |
Form option agreements for stock option plans (incorporated herein by reference to the Company’s
Current Report on Form 8-K dated September 8, 2004, Exhibit 10.4).
|
|||
|
(a) Non-Qualified stock option agreement for 1999 Stock Option Plan
|
||||
|
(b) Incentive stock option agreement for 1999 Stock Option Plan
|
||||
|
(c) Incentive stock option agreement for 1996 Stock Option Plan
|
||||
|
(d) Non-Qualified stock option agreement for 1995 Stock Option Plan
|
||||
|
|
||||
|
Bank Agreements
|
||||
|
|
||||
| 10.24 |
Securitization Program
|
|||
|
|
||||
|
(a) Receivables Sale Agreement, dated as of June 28, 2001 between Avnet, Inc., as Originator, and
Avnet Receivables Corporation as Buyer (incorporated herein by reference to the Company’s Current
Report on Form 8-K dated September 26, 2002, Exhibit 10J).
|
||||
|
|
||||
|
(b) Amendment No. 1, dated as of February 6, 2002, to Receivables Sale Agreement in 10.24(a) above
(incorporated herein by reference to the Company’s Current Report on Form 8-K dated September 26,
2002, Exhibit 10K).
|
||||
|
|
||||
|
(c) Amendment No. 2, dated as of June 26, 2002, to Receivables Sale Agreement in 10.24(a) above
(incorporated herein by reference to the Company’s Current Report on Form 8-K dated September 26,
2002, Exhibit 10L).
|
||||
|
|
||||
|
(d) Amendment No. 3, dated as of November 25, 2002, to Receivables Sale Agreement in 10.24(a)
above (incorporated herein by reference to the Company’s Current Report on Form 8-K dated December
17, 2002, Exhibit 10B).
|
||||
|
|
||||
|
(e) Amendment No. 4, dated as of December 12, 2002, to Receivables Sale Agreement in 10.24(a)
above (incorporated herein by reference to the Company’s Current Report on Form 8-K dated December
17, 2002, Exhibit 10E).
|
||||
|
|
||||
|
(f) Amendment No. 5, dated as of August 15, 2003, to Receivables Sale Agreement in 10.24(a) above
(incorporated herein by reference to the Company’s Current Report on Form 8-K dated September 15,
2003, Exhibit 10C).
|
||||
|
|
||||
|
(g) Amendment No. 6, dated as of August 3, 2005, to Receivables Sale Agreement in 10.24(a) above
(incorporated herein by reference to the Company’s Current Report on Form 8-K dated September 13,
2005, Exhibit 10.1).
|
||||
|
|
||||
|
(h) Amendment No. 7, dated as of August 29, 2007, to Receivables Sale Agreement in 10.24(a) above
(incorporated herein by reference to the Company’s Current Report on Form 8-K dated August 13,
2010, Exhibit 10.7).
|
||||
|
|
||||
|
(i) Amendment No. 8, dated as of August 26, 2010, to Receivables Sale Agreement in 10.24(a) above
(incorporated herein by reference to the Company’s Current Report on Form 8-K dated September 1,
2010, Exhibit 10.2).
|
||||
76
Table of Contents
| Exhibit | ||||
| Number | Exhibit | |||
|
|
||||
|
(j) Second Amended and Restated Receivables Purchase Agreement dated as of August 26, 2010 among
Avnet Receivables Corporation, as Seller, Avnet, Inc., as Servicer, the Financial Institutions
party thereto and JPMorgan Chase Bank, N.A. as Agent (incorporated herein by reference to the
Company’s Current Report on Form 8-K dated September 1, 2010, Exhibit 10.1).
|
||||
|
|
||||
|
(k) Amendment No. 1, dated as of December 28, 2010, to the Second Amended and Restated Receivables
Purchase Agreement in 10.24(j) above (incorporated herein by reference to the Company’s Quarterly
Report on Form 10-Q dated January 28, 2011, Exhibit 10.2).
|
||||
|
|
||||
| 10.25 |
Credit Agreement dated September 27, 2007 among Avnet, Inc., Avnet Japan Co., Ltd., certain other
subsidiaries, Banc of America Securities LLC, as administrative agent, and each lender thereto
(incorporated herein by reference to the Company’s Current Report on Form 8-K dated September 28,
2007, Exhibit 10.1).
|
|||
|
|
||||
| 10.26 |
Guaranty dated as of September 27, 2007 made by Avnet, Inc. to Bank of America, N.A., as
administrative agent, and each of the lenders (incorporated herein by reference to the Company’s
Current Report on Form 8-K dated September 28, 2007, Exhibit 10.2).
|
|||
|
|
||||
| 12.1 | ** |
Ratio of Earnings to Fixed Charges.
|
||
|
|
||||
| 21 | ** |
List of subsidiaries of the Company as of July 2, 2011.
|
||
|
|
||||
| 23.1 | ** |
Consent of KPMG LLP.
|
||
|
|
||||
| 31.1 | ** |
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
||
|
|
||||
| 31.2 | ** |
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
||
|
|
||||
| 32.1 | *** |
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
||
|
|
||||
| 32.2 | *** |
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
||
|
|
||||
| 101.INS | **** |
XBRL Instance Document.
|
||
|
|
||||
| 101.SCH | **** |
XBRL Taxonomy Extension Schema Document.
|
||
|
|
||||
| 101.CAL | **** |
XBRL Taxonomy Extension Calculation Linkbase Document.
|
||
|
|
||||
| 101.LAB | **** |
XBRL Taxonomy Extension Label Linkbase Document.
|
||
|
|
||||
| 101.PRE | **** |
XBRL Taxonomy Extension Presentation Linkbase Document.
|
||
|
|
||||
| 101.DEF | **** |
XBRL Taxonomy Extension Definition Linkbase Document.
|
||
| * |
This Exhibit does not include the Exhibits and Schedules thereto as listed in its table of
contents. The Company undertakes to furnish any such Exhibits and Schedules to the Securities
and Exchange Commission upon its request.
|
|
| ** |
Filed herewith.
|
|
| *** |
Furnished herewith.
|
|
| **** |
To be filed within 30 days in accordance with Rule 405(a)(2) of Regulation S-T.
|
77
TABLE OF CONTENTS
Part IprintItem 1. BusinessprintItem 1A. Risk FactorsprintItem 1B. Unresolved Staff CommentsprintItem 2. PropertiesprintItem 3. Legal ProceedingsprintPart IIprintItem 5. Market For Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesprintItem 6. Selected Financial DataprintItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsprintItem 7A. Quantitative and Qualitative Disclosures About Market RiskprintItem 8. Financial Statements and Supplementary DataprintItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureprintItem 9A. Controls and ProceduresprintItem 9B. Other InformationprintPart IIIprintItem 10. Directors, Executive Officers and Corporate GovernanceprintItem 11. Executive CompensationprintItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersprintItem 13. Certain Relationships and Related Transactions, and Director IndependenceprintItem 14. Principal Accounting Fees and ServicesprintPart IVprintItem 15. Exhibits and Financial Statement Schedulesprint