View:
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the Quarterly Period Ended October 2, 1998 Commission File
#1-4224
Avnet, Inc.
(Exact name of registrant as specified in its charter)
New York 11-1890605
(State or other jurisdiction of IRS Employer I.D.
Number
incorporation or organization)
2211 South 47th Street, Phoenix, AZ 85034
(Address of principal executive offices) (Zip
Code)
Registrant's telephone number, including area code ..... 602-643-
2000
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports) and (2) has been subject to such filing requirements
for the past 90 days.
Yes x No
The number of shares outstanding of the registrant's Common Stock
(net of treasury shares) as of October 30, 1998 - 35,869,575
shares.
AVNET, INC. AND SUBSIDIARIES
INDEX
Part I. Financial Information
Page No.
Item 1. Financial Statements:
Consolidated Balance Sheets -
October 2, 1998 and June 26, 1998 3
Consolidated Statements of Income -
First Quarters Ended October 2, 1998
and September 26, 1997 4
Consolidated Statements of Cash Flows -
First Quarters Ended October 2, 1998
and September 26, 1997 5
Notes to Consolidated Financial Statements6 - 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8 -
13
Item 3. Quantitative and Qualitative
Disclosures About Market Risk
13
Part II. Other Information 14 - 15
Signature Page 16
Forward-Looking Statements
Any statements made in this Report which are not historical facts
are forward-looking statements that involve risks and
uncertainties. Among the factors which could cause actual results
to differ materially are (i) major changes in business conditions
and the economy in general, (ii) risks associated with foreign
operations, such as currency fluctuations, (iii) allocations of
products by suppliers, and (iv) changes in market demand and
pricing pressure.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
AVNET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share amounts)
October 2, June 26,
1998 1998
(unaudited) (audited)
Assets:
Current assets:
Cash and cash equivalents $ 95,753 $ 82,607
Receivables, less allowances of
$31,978 and $31,807, respectively 888,497 894,289
Inventories (Note 3) 1,122,361 1,061,739
Other 34,405 29,722
Total current assets 2,141,016 2,068,357
Property, plant & equipment, net 157,981 155,491
Goodwill, net of accumulated amortization
of $66,051 and $62,461, respectively 463,218 460,882
Other assets 53,241 48,967
Total assets $2,815,456 $2,733,697
Liabilities:
Current liabilities:
Borrowings due within one year $ 163 $ 243
Accounts payable 459,115 451,441
Accrued expenses and other 173,141 155,423
Total current liabilities 632,419 607,107
Long-term debt, less due within one year 846,255 810,695
Total liabilities 1,478,674 1,417,802
Commitments and contingencies (Note 4)
Shareholders' equity (Notes 5 and 6):
Common stock $1.00 par, authorized
120,000,000 shares, issued,
44,338,000 shares and 44,335,000
shares, respectively 44,338 44,335
Additional paid-in capital 435,239 434,695
Retained earnings 1,353,177 1,342,988
Cumulative translation adjustments (28,429) (41,804)
Treasury stock at cost, 7,967,000
shares and 7,872,000 shares,
respectively (467,543) (464,319)
Total shareholders' equity 1,336,782 1,315,895
Total liabilities and
shareholders' equity $2,815,456 $2,733,697
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AVNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
First Quarters Ended
October 2, September 26,
1998 1997
(unaudited) (unaudited)
Sales $1,581,603 $1,398,832
Cost of sales (Note 7) 1,349,693 1,156,874
Gross profit 231,910 241,958
Selling, shipping, general and
administrative expenses (Note 7) 190,784 161,039
Operating income 41,126 80,919
Other income, net 693 236
Interest expense (13,148) (8,636)
Income before income taxes 28,671 72,519
Income taxes 13,013 30,407
Net income $ 15,658 $ 42,112
Earnings per share:
Basic $0.43 $1.03
Diluted $0.42 $1.02
Shares used to compute earnings
per share: (Note 8)
Basic 36,428 40,834
Diluted 36,956 41,372
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AVNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
First Quarters Ended
October 2, September 26,
1998 1997
(unaudited) (unaudited)
Cash flows from operating activities:
Net income $ 15,658 $ 42,112
Non-cash and other reconciling items:
Depreciation and amortization 12,679 13,232
Deferred taxes (891) (623)
Other, net (Note 9) 12,676 5,376
40,122 60,097
Receivables 15,847 (57,281)
Inventories (54,985) (70,814)
Payables, accruals and other, net 14,831 64,937
Net cash flows provided from (used
for) operating activities 15,815 (3,061)
Cash flows from financing activities:
Repurchase of common stock (915) (27,420)
Issuance of notes in public offering,
net of issuance costs 198,603 -
(Payment of) proceeds from commercial
paper and bank debt, net (178,435) 30,778
(Payment of) proceeds from other debt (31) 1,076
Cash dividends (Note 9) (11,117) (6,209)
Other, net - 2,426
Net cash flows provided from
financing activities 8,105 651
Cash flows from investing activities:
Purchases of property, plant and
equipment (11,256) (10,151)
Acquisition of operations, net (Note 9) (447) (2,041)
Net cash flows used for investing
activities (11,703) (12,192)
Effect of exchange rate changes on cash
and cash equivalents 929 (318)
Cash and cash equivalents:
- increase (decrease) 13,146 (14,920)
- at beginning of year 82,607 59,312
- at end of period $ 95,753 $ 44,392
Additional cash flow information (Note 9)
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of management, the accompanying
consolidated financial statements contain all adjustments
necessary to present fairly the financial position as of
October 2, 1998 and June 26, 1998; the results of
operations for the first quarters ended October 2, 1998
and September 26, 1997; and the cash flows for the first
quarters ended October 2, 1998 and September 26, 1997.
For further information, refer to the consolidated
financial statements and accompanying footnotes included
in the Company's Annual Report on Form 10-K for the year
ended June 26, 1998.
2. The results of operations for the first quarter ended
October 2, 1998 are not necessarily indicative of the
results to be expected for the full year.
3. Inventories:
(Thousands) October 2, June 26,
1998 1998
Finished goods $1,057,893 $ 967,472
Work in process 5,470 8,244
Purchased parts and raw materials 58,998 86,023
$1,122,361 $1,061,739
4. From time to time, the Company may become liable with
respect to pending and threatened litigation, taxes, and
environmental and other matters. The Company has been
designated a potentially responsible party or has had
other claims made against it in connection with
environmental clean-ups at several sites. Based upon the
information known to date, management believes that the
Company has appropriately reserved for its share of the
costs of the clean-ups and it is not anticipated that any
contingent matters will have a material adverse impact on
the Company's financial condition, liquidity or results
of operations.
5. Number of shares of common stock reserved for stock
option and stock incentive programs: 4,831,783
6. Comprehensive income - Effective as of the beginning of
fiscal 1999, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130"). SFAS 130 establishes reporting
standards designed to measure all of the changes in
shareholders' equity that result from transactions and
other economic events of the period excluding
transactions with owners ("Comprehensive Income").
Comprehensive Income for the Company consists only of net
income and equity foreign currency translation
adjustments. Comprehensive Income (loss) relating to
equity foreign currency translation adjustments for the
first quarters of fiscal 1999 and 1998 were $13,375,000
and ($1,525,000), respectively.
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. During the first quarter of fiscal 1999, the Company
recorded $26,519,000 pre-tax and $15,740,000 after-tax
($0.43 per share on a diluted basis) of incremental
special charges associated principally with the
reorganization of its Electronics Marketing Group's
European operations. Approximately $18,613,000 of the
pre-tax charge is included in operating expenses, most of
which has or will require an outflow of cash, and
$7,906,000 is included in cost of sales, which represents
a non-cash writedown. These charges include severance,
inventory reserves required related to supplier
terminations, and other items.
8. Earnings per share - The Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings Per
Share" ("SFAS 128") during fiscal 1998. Under the new
standard, 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 reflects potential dilution from the exercise or
conversion of securities into common stock. Earnings per
share data for all prior periods presented have been
restated to conform with the provisions of SFAS 128. The
number of dilutive securities for fiscal 1999 and 1998
amounting to 528,000 shares and 538,000 shares,
respectively, relate to stock options and restricted
stock awards.
9. Additional cash flow information:
Other non-cash and reconciling items primarily includes
the provision for doubtful accounts and in fiscal 1999
also included certain non-recurring items (see Note 6).
Due to the Company's fiscal calendar, the current year's
first quarter includes two dividend payment dates, as
compared with one dividend payment date in the first
quarter of last year.
Cash expended for the acquisition of operations in the
first quarter of fiscal 1999 includes primarily a payment
due in connection with a business acquired in fiscal
1998. In the first quarter of fiscal 1998, cash expended
for acquisition of operations primarily included the cash
paid in connection with the acquisition of ECR Sales
Management, Inc., a Northwest U.S.-based distributor of
point-of-sale equipment and bar code devices which has
been made part of the Electronics Marketing Group's
Americas operations.
Interest and income taxes paid in the first quarters were as
follows:
(Thousands) 1999 1998
Interest $14,051 $10,183
Income taxes $ 1,261 $ 3,078
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Effective as of the beginning of fiscal 1999, the Company
changed its organizational structure to better focus on its
core businesses in order to better meet the needs of both its
customers and suppliers. This change to the Company's
organizational structure involved dividing the former
Electronic Marketing Group into its two major lines of
businesses: the distribution of electronic components and the
distribution of computer products. Accordingly, the Company
currently consists of two major operating groups, the
Electronics Marketing Group ("EMG") and the Computer Marketing
Group ("CMG"). (Through the end of fiscal 1998, these two
units comprised the former Electronic Marketing Group.) EMG,
which focuses on the global distribution of and value-added
services associated with electronic components, is comprised
of three regional operations - EMG Americas, EMG EMEA (Europe,
Middle East and Africa) and EMG Asia. CMG, which focuses on
middle- to high-end computer products and value-added
services, consists of Avnet Computer, Hall-Mark Computer and
a number of other speciality businesses.
Results of Operations
For the first quarter of fiscal 1999 ended October 2, 1998,
consolidated sales were a record $1.582 billion, up 13% as
compared with last year's first quarter sales of $1.399
billion, and up 16% if last year's first quarter sales of
Channel Master ($34 million), which was divested in October
1997, were excluded. The current year's first quarter sales
were benefitted by the fact that the Company's first quarter
contained fourteen weeks as compared with thirteen weeks in
each of the quarters of fiscal 1998. Sales for EMG for the
first quarter of fiscal 1999 were $1.229 billion, up 14% as
compared with sales of $1.076 billion in the prior year
period. Excluding the first quarter fiscal 1999 sales of
businesses acquired subsequent to the end of the first quarter
of last year - Avnet GTDG, Avnet CiNERGi and Optilas (now part
of BFI Optilas)- EMG's sales would have been approximately 13%
higher than a year ago. On a sequential quarterly basis,
EMG's sales were approximately 5% higher than in the fourth
quarter of fiscal 1998. As far as sales by region are
concerned, EMG Americas' sales were $898.5 million in the
first quarter of this year, up 12% as compared with prior year
sales of $799.8 million, and up 4% as compared with the
immediately preceding fourth quarter of fiscal 1998. Sales
for EMG EMEA and EMG Asia in the current year's first quarter
were $286.7 million and $43.9 million, respectively,
representing a 21% increase for EMG EMEA (16% excluding the
impact of acquisitions) and a 13% increase for EMG Asia (a
less than 1% decrease excluding the impact of acquisitions) as
compared with last year's first quarter. On a sequential
basis, EMG EMEA's quarterly sales were up 7% (5% excluding the
impact of acquisitions) while EMG Asia's sales were up 22%
(20% excluding the impact of acquisitions). CMG's sales for
the first quarter of fiscal 1999 were $352.4 million, up 22%
(17% excluding the impact of acquisitions) as compared with
sales of $288.9 million in the first quarter of last year, and
down 7% (9% excluding the impact of acquisitions) as compared
with the immediately preceding fourth quarter of fiscal 1998.
The first fiscal quarter is typically the slow seasonal period
for CMG.
Along with the changes in the organizational structure
referred to above, the Company reorganized its EMG Americas
operation effective at the beginning of fiscal 1999 to better
meet the needs of both customers and suppliers, and is in the
process of reorganizing its EMG European operations along
similar lines. During the first quarter of fiscal 1999, the
Company recorded $26.5 million pre-tax and $15.7 million
after-tax ($0.43 per share on a diluted basis) of incremental
special charges associated primarily with the reorganization
of its EMG European operations. Approximately $18.6 million
of the pre-tax charge is included in operating expenses, most
of which has or will require an outflow of cash, and $7.9
million is included in cost of sales, which represents a non-
cash writedown. These charges include severance, inventory
reserves required related to supplier terminations and other
items. The first quarter charges also include some
incremental costs associated with the completion of the
reorganization of EMG Americas. These costs include primarily
employee relocation and special incentive payments as well as
some additional severance costs. The balance of cash
to be expended in connection with the first quarter special
charges amounting to approximately $13.0 million is expected
to be paid by the end of fiscal 1999, except for amounts
associated with long-term real property lease terminations and
contractual commitments, the amounts of which are not
material. Management expects that the Company's future
results of operations will benefit from the expected cost
savings resulting from the reorganization, and that the impact
on liquidity and sources and uses of capital resources will
not be material. The reorganization of EMG's European
operations will have one more phase which has not yet been
finalized. That phase relates to the consolidation of
warehousing operations in the European region. Management has
selected a location in Belgium for the central warehouse and
is currently working toward the construction and occupancy of
the site. It is currently anticipated that the warehouse will
be in operation by the first quarter of fiscal year 2000. The
implementation of this final phase will result in some
incremental special charges which management is not yet in a
position to estimate.
Consolidated gross profit margins (before special charges) of
15.2% in the first quarter of fiscal 1999 were lower by 2.1%
of sales as compared with 17.3% in the first quarter of last
year. This downward trend is due primarily to the competitive
environment in the electronics distribution marketplace as a
result of the global industry correction cycle as well as the
increased sales of computer products, including
microprocessors, which have lower gross margins than other
products in the Company's product line. Although operating
expenses (before special charges) in absolute dollars were
higher in the first quarter of fiscal 1999 as compared with
the prior year first quarter, they decreased as a percentage
of sales from 11.5% in fiscal 1998 to 10.9% in the current
year. As a result, operating income (before special
charges)of $67.6 million in the first quarter of fiscal 1999
represented 4.3% of sales as compared with $80.9 million or
5.8% of sales in the first quarter of 1998. EMG's operating
income (before special charges and after allocation of
Corporate expenses) was $56.1 million, down 19% as compared
with $69.7 million in the prior year period. CMG's operating
income (after allocation of Corporate expenses) was $11.5
million in the first quarter of fiscal 1999, up 21% as
compared with $9.5 million in the first quarter of last year.
Channel Master, which was sold in October 1997, had operating
income (after allocation of Corporate expenses) of $1.7
million in the first quarter of fiscal 1998.
Interest expense for the first quarter of fiscal 1999 was
significantly higher than in last year's comparable period
primarily due to the impact of cash used to fund the Company's
stock repurchase program and to fund the additional working
capital requirements to support the growth in business. The
Company's effective tax rate in the first quarter of fiscal
1999 was higher than the prior year primarily due to the
impact of the non-deductible amortization of goodwill on
significantly lower pre-tax income and the mix of income in
foreign operations to which different tax rates apply.
As a result of the factors described above, net income in the
first quarter of fiscal 1999 (before special charges) was
$31.4 million, or $0.85 per share on a diluted basis, as
compared with $42.1 million, or $1.02 per share on a diluted
basis, in the first quarter of last year. Including the
special charges referred to above, net income in the first
quarter of fiscal 1999 was $15.7 million, or $0.42 per share
on a diluted basis. Although net income excluding special
charges was down approximately 25% as compared with last
year's first quarter, which included the results of Channel
Master, diluted earnings per share was down only 17% due
primarily to the impact of the Company's stock repurchase
program. The disposition of Channel Master did not have a
material impact on the comparative results as Channel Master's
income in last year's quarter was largely offset by the
interest benefit received in this year's quarter associated
with the proceeds received on the sale.
Liquidity and Capital Resources
During the first quarter of fiscal 1999, the Company generated
$40.1 million from income before depreciation and other non-
cash items, and used $24.3 million for working capital needs
resulting in $15.8 million of net cash flows being generated
from operations. In addition, the Company used $21.4 million
for other normal business operations including purchases of
property, plant and equipment ($11.2 million) and dividends
($11.1 million), offset by positive cash flow from other items
($0.9 million). This resulted in $5.6 million being used for
normal business operations. The Company also used $1.4
million for other items including the repurchase of common
stock ($0.9 million) and the payment of acquisition related
expenditures ($0.5 million). This overall net use of cash of
$7.0 million was funded by the proceeds from the issuance of
certain Notes (as hereinafter defined) ($198.6 million),offset
by a decrease in outstanding bank debt and commercial paper
($178.4 million) and by an increase in available cash ($13.2
million).
The Company's quick assets at October 2, 1998 totaled $984.3
million as compared with $976.9 million at June 26, 1998 and
exceeded the Company's current liabilities by $351.8 million
as compared with a $369.8 million excess at June 26, 1998.
Working capital at October 2, 1998 was $1.509 billion as
compared with $1.461 billion at June 26, 1998. At the end of
the first quarter to support each dollar of current
liabilities, the Company had $1.56 of quick assets and $1.83
of other current assets for a total of $3.39 of current assets
as compared with $3.41 at June 26, 1998.
In the first quarter of fiscal 1999, the Company issued $200.0
million of 6.45% Notes due August 15, 2003 (the "Notes").
The net proceeds received by the Company from the sale of the
Notes were $198.6 million after deduction of the underwriting
discounts. As of October 2, 1998, other expenses associated
with the sale of the Notes amounting to approximately $400
thousand had not yet been paid and, accordingly, have not yet
been deducted from the net proceeds indicated above. The net
proceeds from the Notes have been used to repay indebtedness
which the Company may re-borrow for general corporate
purposes, including capital expenditures, possible
acquisitions, repurchase of the Company's common stock and
working capital needs.
During the first quarter of fiscal 1999, shareholders' equity
increased by $20.9 million to $1,336.8 million at October 2,
1998, while total debt increased by $35.5 million to $846.4
million. As a result, the total debt to capital
(shareholders' equity plus total debt) ratio was 38.8% at
October 2, 1998 as compared with 38.1% at June 26, 1998. The
Company's favorable balance sheet ratios would facilitate
additional financing if, in the opinion of management, such
financing would enhance the future operations of the Company.
On September 25, 1998, the Company's Board of Directors
authorized a new $100 million stock repurchase program. The
stock is to be purchased in the open market from time-to-time
or in directly negotiated purchases. This program is in
addition to the $200 million and $250 million programs
authorized by the Board of Directors in August 1996 and
November 1997, respectively, and which were completed during
fiscal year 1998. During the first quarter of fiscal 1999,
the Company repurchased 100,000 shares of its common stock for
an aggregate purchase price of approximately $3.7 million
($2.8 million of which had not been paid at the end of the
quarter due to transactions which had not yet settled).
Certain of the Company's operations, primarily its
international subsidiaries, occasionally purchase and sell
products in currencies other than their functional currencies.
This subjects the Company to the risks associated with
fluctuations of 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 market risk related to the
foreign exchange contracts is offset by the changes in
valuation of the underlying items being hedged. The amount of
risk and the use of derivative financial instruments described
above is not material to the Company's financial position or
results of operations. Including the recently issued Notes,
approximately 36% of the Company's outstanding debt is in
fixed rate instruments and 64% is subject to variable short-
term interest rates. Accordingly, the Company will be
impacted by any change in short-term interest rates. The
Company does not hedge either its investment in its foreign
operations or its floating interest rate exposures.
With the year 2000 less than two years away, many companies,
including Avnet, are having to modify their computer systems
and applications which currently use two-digit fields to
designate a year ("Year 200 Issue"). Management has assessed
and continues to assess the impact of the Year 2000 Issue on
the Company's reporting systems and operations. The Company
has engaged several outside consulting firms and is using
internal resources to perform a comprehensive remediation of
the Company's computer systems before the year 2000. The
Company's remediation plan with respect to its critical
internal systems consists of four phases: (i) high level
assessment of systems, (ii) detailed assessment, remediation
and unit testing, (iii) deployment and (iv) integration
testing. The Company has already completed the high level
assessment of systems phase and is in the midst of the
remaining phases of the plan, all of which are expected to be
completed by June 30, 1999. The costs to modify the existing
computer systems and applications are significant; however,
they will not be material to the Company's financial position
or results of operations. The current estimate (including
potential capital expenditures) is in the range of $12.0
million to $15.0 million, of which approximately $5.0 million
of costs have already been incurred.
Management believes that the Company's most reasonably likely
worst case year 2000 scenario would involve the failure by
third parties to provide products or services to the Company
as a result of problems experienced by such third parties with
respect to the Year 2000 Issue. Third party system failures
could cause the Company to experience disruption of receipt of
products from suppliers, interruption of telecommunication and
transportation services or interruption of other critical
services. While it is unpredictable at this point in time
whether such a scenario is likely to occur, it is possible
that any such disruptions of sufficient magnitude could have
a material adverse effect on the Company's operations,
liquidity and financial condition. The Company is in contact
with all its major suppliers to ascertain their progress in
implementing year 2000 remediation. Although the Company
cannot control the efforts of the many third parties with
which it interfaces, management does not currently anticipate
that there will be any significant disruption of the Company's
ability to transact business. If, however, the Company
determines that critical supplies or services from third
parties are in jeopardy as a result of the Year 2000 Issue,
the Company will immediately adopt or develop contingency
plans which are responsive to the circumstances. The Company
has already developed and is continuing to implement systems
which will identify interchangeable products for many of the
products the Company sells. These systems would be an
important part of the Company's overall contingency plan in
the event a particular supplier becomes unable to meet the
Company's requirements for delivering products to it.
Effective on January 1, 1999, a single European currency (the
"Euro") will be introduced whereby certain member countries of
the European Union are schedule to establish fixed conversion
rates between their existing national currencies and the Euro.
The participating countries will adopt the Euro as their
common legal currency on that date, and during the transition
period through January 1, 2002 either the Euro or the
participating country's national currency will be accepted as
legal currency. The Company is addressing the issues raised
by the introduction of the Euro including, among other things,
the potential impact on its internal systems, tax and
accounting considerations, business issues and foreign
exchange rate risks. Although the Company is still evaluating
the impact of the Euro, management does not anticipate, based
upon information currently available, that the introduction of
the Euro will have a material adverse impact on the Company's
financial condition or results of operations.
To capitalize on growing world markets for electronic
components and computer products, the Company has pursued and
expects to continue to pursue strategic acquisitions to expand
its business. Management believes that the Company has the
ability to generate sufficient capital resources from internal
or external sources in order to continue its expansion
program. In addition, as with past acquisitions, management
does not expect that future acquisitions will materially
impact the Company's liquidity.
Currently, the Company does not have any material commitments
for capital expenditures except for the costs associated with
its future Belgium warehouse referred to above, the cost of
which is currently estimated to be in the range of $25 to $30
million. The Company and the former owners of a Company-owned
site in Oxford, North Carolina have entered into a Consent
Decree and Court Order with the Environmental Protection
Agency (EPA) for the environmental clean-up of the site, the
cost of which, according to the EPA's remedial investigation
and feasibility study, is estimated to be approximately $6.3
million, exclusive of the $1.5 million in EPA past costs paid
by the potentially responsible parties (PRPs). Pursuant to a
Consent Decree and Court Order entered into between the
Company and the former owners of the site, the former owners
have agreed to bear at least 70% of the clean-up costs of the
site, and the Company will be responsible for not more than
30% of those costs. In addition, the Company has received
notice from a third party of its intention to seek
indemnification for costs it may incur in connection with an
environmental clean-up at a site in Rush, Pennsylvania
resulting from the alleged disposal of wire insulation
material at the site by a former unit of the Company. Based
upon the information known to date, management believes that
it has appropriately accrued in its financial statements for
its share of the costs of the clean-up at all of the above
mentioned sites. The Company is also a PRP, or has been
notified of claims made against it, at an environmental clean-
up site in Huguenot, New York. At this time, management
cannot estimate the amount of its potential liability, if any,
for clean-up costs in connection with this site, but does not
currently anticipate that this matter or any other contingent
matters will have a material adverse impact on the Company's
financial condition, liquidity or results of operations.
Management is not now aware of any commitments, contingencies
or events within its control which may significantly change
its ability to generate sufficient cash from internal or
external sources to meet its needs.
Item 3. Quantative and Qualitative Disclosures About Market
Risk
See Note 1 to the consolidated financial statements included
in the Company's Annual Report on Form 10-K for the year ended
June 26, 1998 and the Liquidity and Capital Resources section
of Management's Discussion and Analysis of Financial Condition
and Results of Operations in Item 2 of this Form 10-Q.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K:
A. Exhibits
Exhibit No.
3A(i). Certificate of Incorporation of the Company as
currently in effect (incorporated by reference).
3A(ii). Certificate of Amendment of the Certificate of
Incorporation of Avnet, Inc., filed with the New
York Department of State on August 13, 1998
(incorporated herein by reference to the
Company's Current Report on Form 8-K bearing
cover date of September 18, 1998, Exhibit 3).
3B. By-laws of the Company (incorporated herein by
reference to the Company's Current Report on
Form 8-K bearing cover date of February 12,
1996, Exhibit 3(ii)).
4. Note: The total amount of securities authorized
under any instrument which 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, none of such instruments are required
to be filed as exhibits to this Report. The
Company agrees to furnish copies of such
instruments to the Commission upon request.
10A. Employment Agreement dated June 29, 1998 between
the Company and David R. Birk (incorporated
herein by reference to the Company's Current
Report on Form 8-K bearing cover date of
September 18, 1998, Exhibit 99.3).
10B. Employment Agreement dated June 29, 1998 between
the Company and Raymond Sadowski (incorporated
herein by reference to the Company's Current
Report on Form 8-K bearing cover date of
September 18, 1998, Exhibit 99.4).
27. Financial Data Schedule (electronic filings
only).
B. Reports on Form 8-K
The Registrant filed the following Current Reports on
Form 8-K during the quarter for which this Report is
filed: 1) Current Report on Form 8-K bearing cover date
of July 30, 1998, whereby the Company reported under
items 5 and 7 the Company's financial results for its
fourth quarter and fiscal year ended June 26, 1998; 2)
Current Report on Form 8-K bearing cover date of August
20, 1998 whereby the Company reported under items 5 and
7 that it sold $200,000,000 of 6.45% Notes due August 15,
2003 in an underwritten public offering; and 3) Current
Report on Form 8-K bearing cover date of September 18,
1998 whereby the Company reported under items 5 and 7
that it filed a Certificate of Amendment of the
Certificate of Incorporation of the Company, Powers of
Attorney, an Amendment to the Restated Employment
Agreement between the Company and Leon Machiz, an
Amendment to the Employment Agreement between the Company
and Keith Williams, the Employment Agreement between the
Company and David Birk, and the Employment Agreement
between the Company and Raymond Sadowski.
S I G N A T U R E
Pursuant to the requirements 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/Raymond Sadowski
Raymond Sadowski
Senior Vice President,
Chief Financial Officer
and Assistant Secretary
By:
s/John F. Cole
John F. Cole
Controller and Principal
Accounting Officer
November 16, 1998
Date