avt_Current folio_10Q

Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


FORM 10-Q


 

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934

 

 

For the quarterly period ended September 29, 2018

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

For the transition period from _____ to _____


Commission File #1-4224

AVNET, INC.

(Exact name of registrant as specified in its charter)

 

 

 

 

 

New York

 

 

 

11-1890605

(State or other jurisdiction

 

 

 

(IRS Employer

Of incorporation)

 

 

 

Identification No.)

 

 

 

 

2211 South 47th Street, Phoenix,  Arizona

 

85034

(Address of principal executive offices)

 

(Zip Code)

(480) 643-2000

(Registrant’s telephone number, including area code.)

 

N/A

(Former name and former address, 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 ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically 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 ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☑

  

Accelerated filer ☐

  

Non-accelerated filer ☐

 

Smaller reporting company ☐

 

Emerging growth company ☐

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

As of November 1, 2018, the total number of shares outstanding of the registrant’s Common Stock was 111,226,195 shares, net of treasury shares.

 

 

 

 


 

Table of Contents

AVNET, INC. AND SUBSIDIARIES

INDEX

 

 

Page No.

PART I. FINANCIAL INFORMATION 

 

 

 

Item 1. Financial Statements 

 

 

 

Consolidated Balance Sheets at September 29, 2018 and June 30, 2018 

2

 

 

Consolidated Statements of Operations for the first quarters ended September 29, 2018 and September 30, 2017 

3

 

 

Consolidated Statements of Comprehensive Income for the first quarters ended September 29, 2018 and September 30, 2017 

4

 

 

Consolidated Statements of Cash Flows for the first quarters ended September 29, 2018 and September 30, 2017 

5

 

 

Notes to Consolidated Financial Statements 

6

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 

20

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk 

26

 

 

Item 4. Controls and Procedures 

27

 

 

PART II. OTHER INFORMATION 

27

 

 

Item 1. Legal Proceedings 

27

 

 

Item 1A. Risk Factors 

28

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 

29

 

 

Item 6. Exhibits 

30

 

 

Signature Page 

31

 

 

 

1


 

Table of Contents

PART I

FINANCIAL INFORMATION

Item 1.Financial Statements

AVNET, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

    

September 29,

    

June 30,

 

 

 

2018

 

2018

 

 

 

(Thousands, except share

 

 

 

amounts)

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

365,852

 

$

621,125

 

Receivables, less allowances of $49,645 and $48,959, respectively

 

 

3,682,512

 

 

3,641,139

 

Inventories

 

 

3,395,194

 

 

3,141,822

 

Prepaid and other current assets

 

 

114,432

 

 

206,513

 

Total current assets

 

 

7,557,990

 

 

7,610,599

 

Property, plant and equipment, net

 

 

525,873

 

 

522,909

 

Goodwill

 

 

982,306

 

 

980,872

 

Intangible assets, net

 

 

199,379

 

 

219,913

 

Other assets

 

 

188,226

 

 

262,552

 

Total assets

 

$

9,453,774

 

$

9,596,845

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Short-term debt

 

$

10,626

 

$

165,380

 

Accounts payable

 

 

2,352,771

 

 

2,269,478

 

Accrued expenses and other

 

 

501,435

 

 

534,603

 

Total current liabilities

 

 

2,864,832

 

 

2,969,461

 

Long-term debt

 

 

1,554,722

 

 

1,489,219

 

Other liabilities

 

 

413,147

 

 

453,084

 

Total liabilities

 

 

4,832,701

 

 

4,911,764

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

Common stock $1.00 par; authorized 300,000,000 shares; issued 113,030,625 shares and 115,825,062 shares, respectively

 

 

113,031

 

 

115,825

 

Additional paid-in capital

 

 

1,554,564

 

 

1,528,713

 

Retained earnings

 

 

3,139,272

 

 

3,235,894

 

Accumulated other comprehensive loss

 

 

(185,794)

 

 

(195,351)

 

Total shareholders’ equity

 

 

4,621,073

 

 

4,685,081

 

Total liabilities and shareholders’ equity

 

$

9,453,774

 

$

9,596,845

 

 

See notes to consolidated financial statements.

2


 

Table of Contents

AVNET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

First Quarters Ended

 

 

    

September 29,

    

September 30,

    

 

 

2018

 

2017

 

 

 

(Thousands, except per share amounts)

 

Sales

 

$

5,089,879

 

$

4,660,943

 

Cost of sales

 

 

4,453,129

 

 

4,048,388

 

Gross profit

 

 

636,750

 

 

612,555

 

Selling, general and administrative expenses

 

 

475,146

 

 

501,593

 

Restructuring, integration and other expenses

 

 

14,788

 

 

46,394

 

Operating income

 

 

146,816

 

 

64,568

 

Other income (expense), net

 

 

(1,892)

 

 

18,921

 

Interest and other financing expenses, net

 

 

(30,093)

 

 

(22,015)

 

Income from continuing operations before taxes

 

 

114,831

 

 

61,474

 

Income tax expense

 

 

31,302

 

 

3,292

 

Income from continuing operations, net of tax

 

 

83,529

 

 

58,182

 

Income from discontinued operations, net of tax

 

 

195

 

 

121

 

Net income

 

 

83,724

 

 

58,303

 

 

 

 

 

 

 

 

 

Earnings per share - basic:

 

 

 

 

 

 

 

Continuing operations

 

$

0.73

 

$

0.48

 

Discontinued operations

 

 

0.00

 

 

0.00

 

Net income per share basic

 

 

0.73

 

 

0.48

 

 

 

 

 

 

 

 

 

Earnings per share - diluted:

 

 

 

 

 

 

 

Continuing operations

 

$

0.72

 

$

0.47

 

Discontinued operations

 

 

0.00

 

 

0.00

 

Net income per share diluted

 

 

0.72

 

 

0.47

 

 

 

 

 

 

 

 

 

Shares used to compute earnings per share:

 

 

 

 

 

 

 

Basic

 

 

115,260

 

 

122,685

 

Diluted

 

 

116,471

 

 

123,984

 

Cash dividends paid per common share

 

$

0.20

 

$

0.18

 

 

See notes to consolidated financial statements.

3


 

Table of Contents

AVNET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

First Quarters Ended

 

 

    

September 29,

    

September 30,

 

 

 

2018

 

2017

 

 

 

(Thousands)

 

Net income

 

$

83,724

 

$

58,303

 

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

Foreign currency translation and other

 

 

8,801

 

 

88,843

 

Pension adjustments, net

 

 

756

 

 

939

 

Total comprehensive income

 

$

93,281

 

$

148,085

 

 

See notes to consolidated financial statements.

4


 

Table of Contents

AVNET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

    

September 29,

    

September 30,

 

 

 

2018

 

2017

 

 

 

 

 

 

 

 

 

 

 

(Thousands)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income

 

$

83,724

 

$

58,303

 

Less: Income from discontinued operations, net of tax

 

 

195

 

 

121

 

Income from continuing operations

 

 

83,529

 

 

58,182

 

 

 

 

 

 

 

 

 

Non-cash and other reconciling items:

 

 

 

 

 

 

 

Depreciation

 

 

25,389

 

 

38,263

 

Amortization

 

 

20,810

 

 

25,506

 

Deferred income taxes

 

 

36,830

 

 

(23,436)

 

Stock-based compensation

 

 

9,044

 

 

8,609

 

Other, net

 

 

14,994

 

 

4,902

 

Changes in (net of effects from businesses acquired and divested):

 

 

 

 

 

 

 

Receivables

 

 

(19,292)

 

 

(32,409)

 

Inventories

 

 

(269,649)

 

 

(266,998)

 

Accounts payable

 

 

95,119

 

 

37,252

 

Accrued expenses and other, net

 

 

(81,753)

 

 

22,140

 

Net cash flows used for operating activities - continuing operations

 

 

(84,979)

 

 

(127,989)

 

Net cash flows used for operating activities - discontinued operations

 

 

 —

 

 

 —

 

Net cash flows used for operating activities

 

 

(84,979)

 

 

(127,989)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Borrowings (repayments) under accounts receivable securitization, net

 

 

(40,000)

 

 

28,000

 

Repayments under senior unsecured credit facility, net

 

 

(50,330)

 

 

(92,471)

 

Repayments under bank credit facilities and other debt, net

 

 

(1,217)

 

 

(24,888)

 

Repurchases of common stock

 

 

(149,094)

 

 

(68,113)

 

Dividends paid on common stock

 

 

(22,932)

 

 

(22,012)

 

Other, net

 

 

17,328

 

 

(579)

 

Net cash flows used for financing activities - continuing operations

 

 

(246,245)

 

 

(180,063)

 

Net cash flows used for financing activities - discontinued operations

 

 

 —

 

 

 —

 

Net cash flows used for financing activities

 

 

(246,245)

 

 

(180,063)

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

(41,007)

 

 

(26,659)

 

Acquisitions of businesses, net of cash acquired

 

 

 —

 

 

(14,661)

 

Other, net

 

 

65

 

 

1,211

 

Net cash flows used for investing activities - continuing operations

 

 

(40,942)

 

 

(40,109)

 

Net cash flows provided by investing activities - discontinued operations

 

 

120,000

 

 

45,391

 

Net cash flows provided by investing activities

 

 

79,058

 

 

5,282

 

 

 

 

 

 

 

 

 

Effect of currency exchange rate changes on cash and cash equivalents

 

 

(3,107)

 

 

6,065

 

 

 

 

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

 

 

— decrease

 

 

(255,273)

 

 

(296,705)

 

— at beginning of period

 

 

621,125

 

 

836,384

 

— at end of period

 

$

365,852

 

$

539,679

 

See notes to consolidated financial statements.

 

 

5


 

Table of Contents

AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of presentation and new accounting pronouncements

 

In the opinion of management, the accompanying unaudited interim consolidated financial statements contain all adjustments necessary to present fairly Avnet, Inc.’s and its consolidated subsidiaries’ (collectively, the “Company” or “Avnet”) financial position, results of operations, comprehensive income and cash flows. All such adjustments are of a normal recurring nature.

 

The preparation of financial statements in accordance with generally accepted accounting principles in the U.S. (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements. Actual results may differ from these estimates.

 

Interim results of operations are not necessarily indicative of the results to be expected for the full fiscal year. The information included in this Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2018.

 

Certain reclassifications have been made in prior periods to conform to the current period presentation including reclassifications as a result of recently adopted accounting pronouncements.

 

Recently adopted accounting pronouncements

 

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”, and collectively with its related subsequent amendments, “Topic 606”). Topic 606 supersedes previous revenue recognition guidance and requires the Company to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for such goods or services.  The Company adopted Topic 606 on July 1, 2018 using the modified retrospective transition method applied to those contracts which were not completed as of July 1, 2018. Under this transition method, the Company’s results in the consolidated statements of operations for the three months ended September 29, 2018 are presented under Topic 606, while the comparative results for the three months ended September 30, 2017 were not retrospectively adjusted, as such results were recognized in accordance with the revenue recognition policy discussed under Summary of Significant Accounting Policies in Note 1 of the Company’s Fiscal 2018 Annual Report on Form 10-K.

 

The adoption of Topic 606 did not have a material impact on the Company’s consolidated financial statements as of the adoption date and as of and for the three months ended September 29, 2018. Substantially all of the Company’s sales continue to be recognized when products are shipped from the Company’s facilities or delivered to customers, depending on the respective contractual terms. For a nominal portion of the Company’s contracts where the accounting did change, the adoption of Topic 606 resulted in an increase to the opening balance of retained earnings of $2.0 million as of July 1, 2018. This impact was primarily due to the acceleration of recognition of net sales and associated gross profit related to certain uncompleted contracts for the manufacture of goods with no alternative use and for which the Company has an enforceable right to payment, including a reasonable profit margin, from the customer for performance completed to date. For these contracts, the Company now recognizes revenue over time as control of the goods transfers through the manufacturing process, rather than when the goods are delivered, and title, risk and reward of ownership are passed to the customer, as under previous revenue recognition guidance.

 

Refer to Note 2 herein for further discussion regarding revenue recognition and related policies.

 

In March 2017, the FASB issued Accounting Standards Update No. 2017-07, Compensation - Retirement Benefits (Topic 715)- Improving the Presentation of Net Periodic Cost and Net Periodic Postretirement Benefit Cost ("ASU No. 2017-07"). ASU No. 2017-07 requires that the service cost component of net periodic pension costs be included in the same line item as other compensation costs arising from services rendered by employees during the period, with the other components of the net periodic pension costs reported separately from the service cost component and below operating

6


 

Table of Contents

AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

income. The Company adopted this standard effective the first quarter of fiscal year 2019, which required changes to the classification of net periodic pension costs in the consolidated statements of operations for all periods presented. The service cost component of the net periodic pension cost is now included in “Selling, general and administrative expenses” with all other components of net periodic pension costs within “Other income (expense), net” in the consolidated statements of operations. The adoption of ASU No. 2017-07 did not have any impact on the Company’s reported amount of income from continuing operations before taxes.

 

During the first quarter of fiscal 2019, the Company adopted ASU 2016-16 - Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. This update addresses the recognition of current and deferred income taxes resulting from an intra-entity transfer of any asset other than inventory. This update has been applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings. The adoption of this update resulted in a cumulative reduction to the opening balance of retained earnings of $5.8 million and a reduction to other assets of $5.8 million.

 

Recently issued accounting pronouncements

 

In August 2018, the FASB issued Accounting Standards Update No. 2018-15, Intangibles—Goodwill and Other— Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force) ("ASU No. 2018-15"). ASU No. 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop internal-use software. ASU No. 2018-15 is effective for the Company in the first quarter of fiscal 2021, with early adoption permitted, and is to be applied either retrospectively or prospectively. The Company is currently evaluating the potential effects of adopting the provisions of ASU No. 2018-15.

 

In February 2018, the FASB issued Accounting Standards Update 2018-02, Income Statement–Reporting Comprehensive Income (Topic 220):-Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (“ASU 2018-02”), which allows entities to reclassify accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the tax legislation enacted by the U.S. federal governments on December 22, 2017 (the “Act”). This update is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. The update should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the income tax rate change resulting from the Act is recognized. The Company is currently evaluating the impact of the adoption of ASU 2018-02 on its consolidated financial statements.

 

In August 2017, the FASB issued Accounting Standards Update 2017-12, Derivatives and Hedging (Topic 815) - Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”), which improves the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements and makes certain targeted improvements to simplify the qualification and application of the hedge accounting compared to current GAAP. This update is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the impact of the adoption of ASU 2017-12 on its consolidated financial statements.

 

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (“ASU 2016-02”) and issued subsequent amendments to the initial guidance in September 2017 within ASU 2017-13 (collectively, Topic 842). Topic 842 requires companies to generally recognize operating and financing lease liabilities on the balance sheet and corresponding right-of-use assets created by those leases with lease terms of more than 12 months. The Company intends to adopt Topic 842 when it becomes effective in the first quarter of fiscal 2020 using a modified retrospective approach. The Company is currently evaluating the impact of its pending adoption of Topic 842 on its consolidated financial statements and expects that most of its operating lease commitments related to the Company’s real estate portfolio will be subject to the new standard and recognized as operating lease liabilities and right-of-use assets upon adoption, which will materially increase total assets and total liabilities relative to such amounts prior to adoption.

7


 

Table of Contents

AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

 

2. Revenue recognition

 

Prior to the adoption of Topic 606, the Company’s revenue recognition policy was in accordance with ASC Topic 605, Revenue Recognition. Effective July 1, 2018, the Company adopted Topic 606 using the modified retrospective transition method, resulting in accounting policy changes surrounding revenue recognition which replace revenue recognition policies discussed in the Summary of Significant Accounting Policies in Note 1 of the Company’s Fiscal 2018 Annual Report on Form 10-K. The adoption of Topic 606 did not have a material impact on the Company’s consolidated financial statements.

 

The Company’s revenues are generated from the distribution and sale of electronic components including semiconductors, interconnect, passive and electromechanical (“IP&E”) devices and other integrated electronic components from the world’s leading electronic component manufacturers. The Company’s expertise in design, supply chain and logistics enable it to sell to customers of all sizes from startups and mid-sized businesses to enterprise-level original equipment manufacturers (“OEMs”), electronic manufacturing services (“EMS”) providers and original design manufacturers (“ODMs”). The Company sells to a variety of markets ranging from automotive to medical to defense and aerospace. The Company also sells integrated solutions including the assembly or manufacture of embedded electronic component products and systems, touch and passive displays, and standard or specialized boards. The Company’s revenue arrangements primarily consist of performance obligations related to the transfer  of promised products. The Company considers customer purchase orders, which in some cases are governed by master agreements, to be the contracts with a customer. All revenue is generated from contracts with customers.

 

Revenue is recognized at the point at which control of the underlying products are transferred to the customer, which includes determining whether products are distinct and separate performance obligations. For electronic component and related product sales, this generally occurs upon shipment of the products, however, this may occur at a later date depending on the agreed upon sales terms, such as delivery at the customer's designated location, or when products that are consigned at customer locations are consumed. In limited instances, where products are not in stock and delivery times are critical, product is purchased from the supplier and drop-shipped to the customer. The Company typically takes control of the products when shipped by the manufacturer and then recognizes revenue when control of the product transfers to the customer. The Company does not have material product warranty obligations as the assurance type product warranties provided by the component manufacturers are passed through to the Company’s customers.

 

For contracts related to the specialized manufacture of products for customers with no alternative use and for which the Company has an enforceable right to payment, including a reasonable profit margin, the Company recognizes revenue over time as control of the products transfer through the manufacturing process. The contract assets associated with such specialized manufacturing products are not material as these contracts represent less than 2% of the Company’s total sales.

 

Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products. The Company estimates different forms of variable consideration at the time of sale based on historical experience, current conditions and contractual obligations. Revenue is recorded net of customer discounts and rebates. When the Company offers the right or has a history of accepting returns of product, historical experience is utilized to establish a liability for the estimate of expected returns and an asset for the right to recover the product expected to be returned. These adjustments are made in the same period as the underlying sales transactions. 

 

The Company considers the following indicators amongst others when determining whether it is acting as a principal in the contract and recording revenue on a gross basis: (i) the Company is primarily responsible for fulfilling the promise to provide the specified products or services, (ii) the Company has inventory risk before the specified products have been transferred to a customer or after transfer of control to the customer and (iii) the Company has discretion in establishing the price for the specified products or services. If a transaction does not meet the Company's indicators of being a principal in the transaction, then the Company is acting as an agent in the transaction and the associated revenues are recognized on a net basis.

8


 

Table of Contents

AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

 

Sales and other tax amounts collected from customers for remittance to governmental authorities are excluded from revenue. The Company has elected to treat shipping and handling of product as a fulfillment activity. The practical expedient not to disclose information about remaining performance obligations has also been elected as these contacts have an original duration of one year or less. The Company does not have any payment terms that exceed one year from the point it has satisfied the related performance obligations.

 

3. Discontinued operations

 

In February 2017, the Company completed the sale of its Technology Solutions business (“TS business”) to Tech Data Corporation (the “Buyer”). The TS business and the financial impacts of the divestiture are classified as discontinued operations in all periods presented. In August 2018, the Company executed a settlement agreement with the Buyer resulting in a final adjustment of $120.0 million and a final geographic allocation of the TS business sales price for tax reporting purposes. The incremental consideration received from the sale of the TS business has been classified as cash flow from discontinued operations investing activities.

 

In connection with the sale of the TS business, the Company entered into a Transition Services Agreement (“TSA”), pursuant to which the Buyer will pay the Company to provide certain information technology, distribution, facilities, finance and human resources related services for various periods of time depending upon the services not to exceed approximately two years from the closing date. Expenses incurred by the Company to provide such services under the TSA are classified within selling, general and administrative expenses and amounts billed to the Buyer to provide such services are classified as a reduction of such expenses. In fiscal 2018, the Buyer formally terminated substantially all TSA services outside of certain minor information technology services and all remaining TSA services are expected to be terminated during the first half of fiscal 2019.

 

 

4. Goodwill and long-lived assets

 

Goodwill

 

The following table presents the change in goodwill by reportable segment for the three months ended September 29, 2018.  

 

 

 

 

 

 

 

 

 

 

 

 

    

Electronic 

    

Premier

    

 

 

 

 

Components

 

Farnell

 

Total

 

 

(Thousands)

Carrying value at June 30, 2018 (1)

 

$

479,699

 

$

501,173

 

$

980,872

Additions from acquisitions

 

 

 —

 

 

 —

 

 

 —

Foreign currency translation

 

 

704

 

 

730

 

 

1,434

Carrying value at September 29, 2018 (1)

 

$

480,403

 

$

501,903

 

$

982,306


(1) Includes accumulated impairment of $1,045,110 from fiscal 2009 and $181,440 from fiscal 2018

 

The Company evaluates each quarter if facts and circumstances indicate that it is more likely than not that the fair value of reporting units is less than its carrying value, which would require the Company to perform an interim goodwill impairment test. Indicators the Company evaluates to determine whether an interim goodwill impairment test is necessary include, but are not limited to (i) a sustained decrease in share price or market capitalization as of any fiscal quarter end, (ii) changes in the macroeconomic or industry environments, (iii) the results of and the amount of time passed since the last goodwill impairment test and (iv) the long-term expected financial performance of its reporting units. During the first quarter of fiscal 2019, the Company concluded that an interim goodwill impairment test was not required.

 

9


 

Table of Contents

AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Intangible Assets

 

The following table presents the Company’s acquired intangible assets at September 29, 2018, and June 30, 2018, respectively.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 29, 2018

 

June 30, 2018

 

 

 

Acquired

 

Accumulated

 

Net Book

 

 Acquired 

 

 Accumulated 

 

 Net Book 

 

 

    

Amount

    

Amortization

    

Value

    

Amount

    

Amortization

    

Value

 

 

 

(Thousands)

 

Customer related

 

$

300,707

 

$

(165,105)

 

$

135,602

 

$

300,126

 

$

(148,416)

 

$

151,710

 

Trade name

 

 

54,487

 

 

(18,952)

 

 

35,535

 

 

54,391

 

 

(16,711)

 

 

37,680

 

Technology and other

 

 

52,964

 

 

(24,722)

 

 

28,242

 

 

52,793

 

 

(22,270)

 

 

30,523

 

 

 

$

408,158

 

$

(208,779)

 

$

199,379

 

$

407,310

 

$

(187,397)

 

$

219,913

 

 

Intangible asset amortization expense from continuing operations was $20.8 million and $25.5 million for the first quarters of fiscal 2019 and 2018, respectively. Intangible assets have a weighted average remaining useful life of approximately 3 years. The following table presents the estimated future amortization expense for the remainder of fiscal 2019 and the next five fiscal years (in thousands):

 

 

 

 

 

Fiscal Year

    

 

Remainder of fiscal 2019

 

$

62,719

2020

 

 

81,311

2021

 

 

39,148

2022

 

 

12,358

2023

 

 

3,606

2024

 

 

237

Total

 

$

199,379

 

 

 

5. Debt

 

Short-term debt consists of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

September 29, 2018

    

June 30, 2018

    

September 29, 2018

    

June 30, 2018

 

 

 

Interest Rate

 

Carrying Balance

 

Bank credit facilities and other

 

3.11

%

 

2.91

%

 

$

10,626

 

$

60,380

 

Accounts receivable securitization program

 

 —

 

 

2.63

%

 

 

 —

 

 

105,000

 

Short-term debt

 

 

 

 

 

 

 

$

10,626

 

$

165,380

 

 

Bank credit facilities and other consists primarily of various committed and uncommitted lines of credit and other forms of bank debt with financial institutions utilized primarily to support the working capital requirements of the Company including its foreign operations.

 

 

10


 

Table of Contents

AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Long-term debt consists of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

September 29, 2018

    

June 30, 2018

    

September 29, 2018

    

June 30, 2018

 

 

 

Interest Rate

 

Carrying Balance

 

Revolving credit facilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable securitization program

 

2.99

%

 

 —

 

 

$

65,000

 

$

 —

 

Public notes due:

 

 

 

 

 

 

 

 

 

 

 

 

 

June 2020

 

5.88

%

 

5.88

%

 

 

300,000

 

 

300,000

 

December 2021

 

3.75

%

 

3.75

%

 

 

300,000

 

 

300,000

 

December 2022

 

4.88

%

 

4.88

%

 

 

350,000

 

 

350,000

 

April 2026

 

4.63

%

 

4.63

%

 

 

550,000

 

 

550,000

 

Other long-term debt

 

1.01

%

 

1.26

%

 

 

293

 

 

383

 

Long-term debt before discount and debt issuance costs

 

 

 

 

 

 

 

 

1,565,293

 

 

1,500,383

 

Discount and debt issuance costs – unamortized

 

 

 

 

 

 

 

 

(10,571)

 

 

(11,164)

 

Long-term debt

 

 

 

 

 

 

 

$

1,554,722

 

$

1,489,219

 

 

In August 2018, the Company amended and extended its accounts receivable securitization program (the “Securitization Program”) in the United States with a group of financial institutions to allow the Company to transfer, on an ongoing revolving basis, an undivided interest in a designated pool of trade accounts receivable, to provide security or collateral for borrowings up to a maximum of $500 million. The Securitization Program does not qualify for off balance sheet accounting treatment and any borrowings under the Securitization Program are recorded as debt in the consolidated balance sheets. Under the Securitization Program, the Company legally sells and isolates certain U.S. trade accounts receivable, into a wholly owned and consolidated bankruptcy remote special purpose entity. Such receivables, which are recorded within “Receivables” in the consolidated balance sheets, totaled $767.7 million and $790.5 million at September 29, 2018, and June 30, 2018, respectively. The Securitization Program contains certain covenants relating to the quality of the receivables sold. The Securitization Program also requires the Company to maintain certain minimum interest coverage and leverage ratios, which the Company was in compliance with as of September 29, 2018, and June 30, 2018. The Securitization Program expires in August 2020 and as a result the Company has classified outstanding balances as long-term debt as of September 29, 2018. Interest on borrowings is calculated using a one-month LIBOR rate plus a spread of 0.75%. The facility fee on the unused balance of the facility is up to 0.35%.

 

The Company has a five-year $1.25 billion senior unsecured revolving credit facility (the “Credit Facility”) with a syndicate of banks, consisting of revolving credit facilities and the issuance of up to $200.0 million of letters of credit and up to $300.0 million of loans in certain approved currencies, which expires in June 2023. Subject to certain conditions, the Credit Facility may be increased up to $1.50 billion. Under the Credit Facility, the Company may select from various interest rate options, currencies and maturities. The Credit Facility contains certain covenants including various limitations on debt incurrence, share repurchases, dividends, investments and capital expenditures. The Credit Facility also includes financial covenants requiring the Company to maintain minimum interest coverage and leverage ratios, which the Company was in compliance with as of September 29, 2018, and June 30, 2018. As of September 29, 2018, and June 30, 2018, there were $3.0 million and $2.0 million, respectively, in letters of credit issued under the Credit Facility.

 

As of September 29, 2018, the carrying value and fair value of the Company’s total debt was $1.57 billion and $1.59 billion, respectively. At June 30, 2018, the carrying value and fair value of the Company’s total debt was $1.65 billion and $1.67 billion, respectively. Fair value for the public notes was estimated based upon quoted market prices and for other forms of debt fair value approximates carrying value due to the market based variable nature of the interest rates on those debt facilities.

 

11


 

Table of Contents

AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

6. Derivative financial instruments

 

Many of the Company’s subsidiaries 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 (e.g., offsetting receivables and payables in the same foreign currency) as well as by creating offsetting positions through the use of derivative financial instruments, primarily forward foreign exchange contracts typically with maturities of less than 60 days (“economic hedges”), but no longer than one year. The Company continues to have exposure to foreign currency risks to the extent they are not economically hedged. The Company adjusts any economic hedges to fair value through the consolidated statements of operations primarily within “other income (expense), net.” The fair value of forward foreign exchange contracts, which are based upon Level 2 criteria under the ASC 820 fair value hierarchy, are classified in the captions “Prepaid and other current assets” or “Accrued expenses and other,” as applicable, in the accompanying consolidated balance sheets as of September 29, 2018, and June 30, 2018. The Company’s master netting and other similar arrangements with various financial institutions related to derivative financial instruments allow for the right of offset. The Company’s policy is to present derivative financial instruments with the same counterparty as either a net asset or liability when the right of offset exists.

 

The Company generally does not hedge its investments 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.

 

The Company’s foreign currency exposure relates primarily to international transactions where the currency collected from customers can be different from the currency used to purchase from suppliers. The Company’s foreign operations transactions are denominated primarily in the following currencies: U.S. Dollar, Euro, British Pound, Canadian Dollar, Japanese Yen, Chinese Yuan, Taiwan Dollar and Mexican Peso. The Company also, to a lesser extent, has foreign operations transactions in other European and Asia/Pacific foreign currencies.

 

The fair values of derivative financial instruments in the Company’s consolidated balance sheets are as follows:

 

 

 

 

 

 

 

 

 

 

 

September 29,

    

June 30,

 

 

 

2018

 

2018

 

 

 

(Thousands)

 

Forward foreign currency exchange contracts not receiving hedge accounting treatment recorded in:

 

 

 

 

 

 

 

Other current assets

 

$

6,069

 

$

2,259

 

Accrued expenses

 

 

7,119

 

 

7,083

 

 

The amounts recorded to other income (expense), net, related to derivative financial instruments for economic hedges are as follows:

 

 

 

 

 

 

 

 

 

 

 

First Quarters Ended

 

 

 

September 29,

    

September 30,

 

 

 

2018

 

2017

 

 

 

(Thousands)

 

Net derivative financial instrument gain

 

$

2,792

 

$

1,859

 

 

Under the Company’s economic hedging policies, gains and losses on the derivative financial instruments are classified within the same line item in the consolidated statements of operations and as the underlying assets or liabilities being economically hedged.

 

12


 

Table of Contents

AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

7. Commitments and contingencies

 

From time to time, the Company may become a party to, or be otherwise involved in various lawsuits, claims, investigations and other legal proceedings arising in the ordinary course of conducting its business. While litigation is subject to inherent uncertainties, management does not anticipate that any such matters will have a material adverse effect on the Company’s financial condition, liquidity or results of operations.

 

The Company is also currently subject to various pending and potential legal matters and investigations relating to compliance with governmental laws and regulations, including import/export and environmental matters. For certain of these matters it is not possible to determine the ultimate outcome, and the Company cannot reasonably estimate the maximum potential exposure or the range of possible loss for such matters due primarily to being in the early stages of the related proceedings and investigations. The Company currently believes that the resolution of such matters will not have a material adverse effect on the Company’s financial position or liquidity, but could possibly be material to its results of operations in any one reporting period.

 

As of September 29, 2018 and June 30, 2018, the Company had aggregate estimated liabilities of $14.7 million and $14.2 million, respectively, classified within accrued expenses and other for such compliance-related matters that were reasonably estimable as of such dates.

 

8. Income taxes

 

The Company’s effective tax rate on its income before income taxes from continuing operations was 27.3% in the first quarter of fiscal 2019 as compared with 5.4% in the first quarter of fiscal 2018.  During the first quarter of fiscal 2019, the Company’s effective tax rate was unfavorably impacted primarily by (i) an adjustment to the provisional estimate for the one-time mandatory deemed repatriation tax liability recorded under the requirements of the Act and (ii) increases in unrecognized tax benefits, partially offset by (iii) an adjustment to the provisional deferred tax impacts of the Act and (iv) the mix of income in lower tax jurisdictions. During the first quarter of fiscal 2018, the Company’s effective tax rate was favorably impacted primarily by (i) the mix of income in lower tax jurisdictions and (ii) the release of unrecognized tax benefit reserves primarily due to the negotiation of a favorable outcome in a foreign jurisdiction.

 

In fiscal 2018, the Company recorded a provisional amount for the one-time mandatory deemed repatriation tax liability (the “transition tax”) of $230.0 million.  The Company increased this provisional estimate by $16.7 million during the first quarter of fiscal 2019, as a result of additional analysis performed on foreign based-earnings and profits and further refinement of the state tax impacts of the Act. The Company will finalize the transition tax during the second quarter of fiscal 2019, which corresponds to the end of the measurement period allowed for under Staff Accounting Bulletin 118 (“SAB 118”) primarily as a result of further substantiation of foreign-based earnings and profits and foreign tax credits and for evaluation related to the utilization of those foreign tax credits. Additionally, provisional estimates of the transition tax may change due to new guidance from federal and state regulators, interpretation of the law, and refinement of the Company’s estimates from ongoing analysis of tax positions. Any final changes in the provisional amount will be reflected in income tax expense in the second quarter of fiscal 2019, and may be material.

 

In fiscal year 2018, the Company recorded a provisional expense to account for the deferred tax impacts of the Act, which was reduced by $8.4 million in the first quarter of fiscal 2019 as a result of the Company making certain elections related to the fiscal year 2018 federal net operating loss. The estimates related to deferred taxes are provisional and may change as the Company continues to analyze the impacts of the Act, including state income tax conformity considerations.

 

The Company continues to evaluate the impact of the Act including the Company’s historical assertion related to ASC 740 Income Taxes unremitted earnings. The Company has not changed its historical assertion as of September 29, 2018 that its ASC 740 unremitted earnings are permanently reinvested. The Company believes any unrecorded liabilities related to this assertion are not material.

 

13


 

Table of Contents

AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

9. Pension plan

 

The Company has a noncontributory defined benefit pension plan that covers substantially all U.S. employees and an acquired closed noncontributory defined benefit pension plan covering certain current or former  Premier Farnell U.S. employees (the “Plans”). Components of net periodic pension cost for the Plans were as follows, which reflect the adoption of ASU 2017-07 as discussed further in Note 1:

 

 

 

 

 

 

 

 

 

 

 

First Quarters Ended

 

 

    

September 29,

    

September 30,

 

 

 

2018

   

2017

 

 

 

(Thousands)

 

Service cost

 

$

3,734

 

$

3,868

 

Total net periodic pension cost within selling, general and administrative expenses

 

 

3,734

 

 

3,868

 

 

 

 

 

 

 

 

 

Interest cost

 

 

6,614

 

 

5,783

 

Expected return on plan assets

 

 

(13,301)

 

 

(13,757)

 

Amortization of prior service credits

 

 

(393)

 

 

(393)

 

Recognized net actuarial loss

 

 

2,535

 

 

3,746

 

Total net periodic pension benefit within other income (expense), net

 

 

(4,545)

 

 

(4,621)

 

 

 

 

 

 

 

 

 

Net periodic pension benefit

 

$

(811)

 

$

(753)

 

 

 

In connection with the adoption of ASU No. 2017-07, the Company now classifies service cost as a component of selling, general and administrative expenses and other components of net periodic pension costs within other income (expense), net. The Company contributed $8.0 million to the Plans during the first quarter of fiscal 2019 and expects to make an additional contribution to the Plans of $8.0 million in the remainder of fiscal 2019.

 

Amounts reclassified out of accumulated other comprehensive income, net of tax, to other income (expense), net during the first quarters of fiscal 2019 and fiscal 2018 were not material and substantially all related to net periodic pension costs including recognition of actuarial losses and amortization of prior service credits.

 

In connection with the sale of the TS business, a significant number of former employees became terminated vested employees under the Plan. During fiscal 2018, the aggregate amount of former employee withdrawals from the Plan exceeded the pension accounting settlement threshold for fiscal 2018, which required a settlement expense under ASC 715 pension accounting.

 

14


 

Table of Contents

AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

10. Shareholders’ equity

 

Share repurchase program

 

In August 2018, the Company’s Board of Directors authorized a $500 million increase in the Company’s existing share repurchase program. With this increase, the Company’s may repurchase up to $2.45 billion of common stock in the open market or through privately negotiated transactions. The timing and actual number of shares repurchased will depend on a variety of factors such as share price, corporate and regulatory requirements, and prevailing market conditions. During the three months ended September 29, 2018, the Company repurchased 3.3 million under this program for a total cost of $156.9 million. As of September 29, 2018, the Company had $615.2 million remaining under its share repurchase authorization.

 

Common stock dividend

 

In August 2018, the Company’s Board of Directors approved a dividend of $0.20 per common share and dividend payments of $22.9 million were made in September 2018. 

 

11. Earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

First Quarters Ended

 

 

 

September 29,

 

September 30,

 

 

 

2018

  

2017

 

 

 

(Thousands, except per share data)

 

Numerator:

 

 

 

   

 

 

 

Income from continuing operations

 

$

83,529

 

$

58,182

 

Income from discontinued operations

 

 

195

 

 

121

 

Net income

 

$

83,724

 

$

58,303

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

Weighted average common shares for basic earnings per share

 

 

115,260

 

 

122,685

 

Net effect of dilutive stock based compensation awards

 

 

1,211

 

 

1,299

 

Weighted average common shares for diluted earnings per share

 

 

116,471

 

 

123,984

 

Basic earnings per share - continuing operations

 

$

0.73

 

$

0.48

 

Basic earnings per share - discontinued operations

 

 

0.00

 

 

0.00

 

Basic earnings per share

 

$

0.73

 

$

0.48

 

Diluted earnings per share - continuing operations

 

$

0.72

 

$

0.47

 

Diluted earnings per share - discontinued operations

 

 

0.00

 

 

0.00

 

Diluted earnings per share

 

$

0.72

 

$

0.47

 

Stock options excluded from earnings per share calculation due to anti-dilutive effect

 

 

1,113

 

 

2,033

 

 

 

 

 

 

 

15


 

Table of Contents

AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

12. Additional cash flow information

 

Non-cash investing and financing activities and supplemental cash flow information were as follows:

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

    

September 29,

    

September 30,

    

 

 

2018

 

2017

 

 

 

(Thousands)

 

Non-cash Investing Activities:

 

 

 

 

 

 

 

Capital expenditures incurred but not paid

 

$

9,690

 

$

23,176

 

Unsettled sale of marketable securities

 

 

 —

 

 

4,121

 

Non-cash Financing Activities:

 

 

 

 

 

 

 

Unsettled share repurchases

 

$

11,228

 

$

3,955

 

Supplemental Cash Flow Information:

 

 

 

 

 

 

 

Interest

 

$

13,826

 

$

5,107

 

Income taxes

 

 

54,519

 

 

18,362

 

 

Included in cash and cash equivalents as of September 29, 2018 and June 30, 2018 was $5.4 million and $6.1 million, respectively, of cash equivalents, which was primarily comprised of investment grade money market funds and overnight time deposits.

 

13. Segment information

 

Electronic Components (“EC”) and Premier Farnell (“PF”) are the Company’s reportable segments (“operating groups”). EC markets and sells semiconductors and interconnect, passive and electromechanical devices and integrated components to a diverse customer base serving many end-markets. PF distributes electronic components and related products to the electronic system design community utilizing multi-channel sales and marketing resources.

 

16


 

Table of Contents

AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

 

 

 

 

 

 

 

 

 

First Quarters Ended

 

 

September 29,

 

September 30,

 

 

2018

    

2017

 

 

(Thousands)

Sales:

    

 

    

    

 

    

Electronic Components

 

$

4,710,825

 

$

4,307,251

Premier Farnell

 

 

379,054

 

 

353,692

 

 

 

5,089,879

 

 

4,660,943

Operating income:

 

 

 

 

 

 

Electronic Components

 

$

161,913

 

$

139,601

Premier Farnell

 

 

40,793

 

 

32,632

 

 

 

202,706

 

 

172,233

Corporate (1)

 

 

(20,175)

 

 

(35,686)

Restructuring, integration and other expenses

 

 

(14,788)

 

 

(46,394)

Amortization of acquired intangible assets and other

 

 

(20,927)

 

 

(25,585)

Operating income

 

$

146,816

 

$

64,568

 

 

 

 

 

 

 

Sales, by geographic area:

 

 

 

 

 

 

Americas (2)

 

$

1,271,793

 

$

1,185,485

EMEA (3)

 

 

1,714,917

 

 

1,692,985

Asia/Pacific (4)

 

 

2,103,169

 

 

1,782,473

Sales

 

$

5,089,879

 

$

4,660,943

 


(1)Corporate is not a reportable segment and represents certain centrally incurred overhead expenses and assets that are not included in the EC and PF measures of profitability or assets. Corporate amounts represent a reconciling item between segment measures of profitability or assets and total Avnet amounts reported in the consolidated financial statements.

 

(2)Includes sales from the United States of $1.18 billion and $1.10 billion for the first quarters ended September 29, 2018 and September 30, 2017, respectively.

 

(3)Includes sales from Germany and Belgium of $685.7 million and $280.1 million, respectively, for the first quarter ended September 29, 2018. Includes sales from Germany and Belgium of $681.0 million and $262.5 million, respectively, for the first quarter ended September 30, 2017. 

 

(4)Includes sales from China (including Hong Kong), Taiwan and Singapore of $693.1 million, $888.7 million and $280.4 million, respectively, for the first quarter ended September 29, 2018. Includes sales from China (including Hong Kong), Taiwan and Singapore of $655.4 million, $657.5 million and $228.9 million, respectively, for the first quarter ended September 30, 2017.  

17


 

Table of Contents

AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

 

 

 

 

 

 

 

 

 

 

 

September 29,

 

June 30,

 

 

 

2018

 

2018

 

 

 

(Thousands)

 

Property, plant, and equipment, net, by geographic area:

 

 

 

 

 

 

 

Americas (1)

 

$

272,398

 

$

276,156

 

EMEA (2)

 

 

212,486

 

 

204,797

 

Asia/Pacific

 

 

40,989

 

 

41,956

 

Property, plant, and equipment, net

 

$

525,873

 

$

522,909

 

 


(1)Includes property, plant and equipment, net, of $267.5 million and $271.4 million as of September 29, 2018, and June 30, 2018, respectively, in the United States.

 

(2)Includes property, plant and equipment, net, of $99.4 million, $50.8 million and $52.7 million in Germany, UK and Belgium, respectively, as of September 29, 2018; and $99.4 million, $52.5 million and $43.4 million in Germany, UK and Belgium, respectively, as of June 30, 2018.  

 

14. Restructuring expenses

 

Fiscal 2019

 

During fiscal 2019, the Company executed certain restructuring actions in order to improve operating efficiencies and further integrate the acquisition of PF. Restructuring expenses are included as a component of restructuring, integration and other expenses in the Consolidated Statements of Operations. The activity related to the restructuring liabilities established during fiscal 2019 is presented in the following table:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Facility

 

 

 

 

    

 

 

    

and Contract

    

 

 

 

 

Severance

    

Exit Costs

    

Total

 

 

(Thousands)

Fiscal 2019 restructuring expenses

 

$

7,183

 

$

350

 

$

7,533

Cash payments

 

 

(1,983)

 

 

(47)

 

 

(2,030)

Other, principally foreign currency translation

 

 

 —

 

 

 —

 

 

 —

Balance at September 29, 2018

 

$

5,200

 

$

303

 

$

5,503

 

Severance expense recorded in the first quarter of fiscal 2019 related to the reduction, or planned reduction, of approximately 50 employees, primarily in executive management, operations, warehouse, sales and business support functions. Facility and contract exit costs primarily consist of liabilities for remaining lease obligations for exited facilities and for contractual termination costs. Of the $7.5 million in restructuring expenses recorded during the first quarter of fiscal 2019, $7.3 million related to EC and  $0.2 million related to PF. The Company expects the majority of the remaining amounts to be paid by the end of fiscal 2019.  

 

18


 

Table of Contents

AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Fiscal 2018 and prior

 

During fiscal 2018 and prior, the Company incurred restructuring expenses related to various restructuring actions intended to achieve planned synergies from acquired businesses and to reduce future operating expenses. The following table presents the activity during the first quarter of fiscal 2019 related to the remaining restructuring liabilities from continuing operations established during fiscal 2018 and prior: