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December 14, 2004
VIA U.S. MAIL and FACSIMILE
Raymond Sadowski
Chief Financial Officer
Avnet, Inc.
2211 South 47th Street
Phoenix, Arizona 85034
RE: Avnet, Inc.
Form 10-K for the fiscal year ended July 3, 2004
Filed September 8, 2004
Forms 8-K dated August 11, 2004 and October 28, 2004
File No. 001-04224
Dear Mr. Sadowski:
We have reviewed your filings and have the following
comments.
We have limited our review to only your financial statements and
related disclosures and will make no further review of your
documents. Where indicated, we think you should revise your
filings
in response to these comments. If you disagree, we will consider
your explanation as to why our comment is inapplicable or a
revision
is unnecessary. Please be as detailed as necessary in your
explanation. In some of our comments, we may ask you to provide
us
with supplemental information so we may better understand your
disclosure. After reviewing this information, we may or may not
raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
Form 10-K for the year ended July 3, 2004
Management`s Discussion and Analysis
Results of Operations - Page 13
1. While we see that you sometimes refer to the benefits from
restructuring plans in discussing operating results, you should
expand future filings to more fully comply with the disclosure
requirements of SAB Topic 5-P. Under that guidance you should
quantify the expected effects of restructuring activities on
future
earnings and cash flows and indicate the period or periods in
which
the effects are expected to be recognized. You should identify
the
various types of expense items impacted, such as depreciation
expense, salaries expense and other similar items and quantify the
anticipated impact upon the individual line items of the financial
statements. If cost savings are expected to be offset by
anticipated
increases in other expenses or by reduced revenues, that fact
should
be disclosed, as well. In later periods, you should quantify the
actual savings realized. If anticipated savings are not achieved,
or
are achieved in later periods, MD&A should discuss that outcome,
its
reasons, and its likely effects on future operating results and
liquidity. This comment applies to your interim filings as well.
Please apply in all future filings and for all future charges.
2. With respect to facilities charges, for each exit plan please
disaggregate to separately disclose the amounts for accrued exit
liabilities and non-cash write-downs. Except where not material,
for
company owned assets, make disclosure about how you measured fair
value and the disposition of the related assets. As a related
matter, in light of the magnitude of the facilities charges in
recent
periods, we believe that you should make more specific and
detailed
disclosure about the facilities identified for closure, including
more detail about the facts and circumstances leading management
to
exit the identified facilities and consolidate their operations.
Please expand in future filings and for all future charges.
3. We see that your exit plans regularly include material charges
for
impairment of IT related assets. In future filings please make
more
specific disclosure about the initiatives terminated, including
more
specific detail about "why" you elected to terminate the
underlying
initiatives. Please also make disclosure about the disposition of
the
underling assets-for instance, what happened to the hardware? If
these charges include significant amounts for capitalized internal
costs (for instance, salaries), please expand to clarify in the
disclosure and quantify where material.
4. In future filings please make more detailed and specific
disclosure about the status of exit actions at each year-end. We
see
that you`ve made disclosure about the status and timing of exit
cost
accruals, but that the status of the underlying exit actions is
not
always apparent. For instance, we see significant charges for
facility consolidations in 2004. Are those consolidations
complete?
Have the identified facilities been closed? If not, when do
expect
to complete the closures. As well, are severance actions
complete?
Have identified employees in fact been terminated? If not, when
do
you expect to compete the termination actions? Please apply in
all
future filings and for all future charges.
Liquidity and Capital Resources - Page 24
5. We see the presentation of free cash flow in the discussion of
annual cash flows. Note that free cash flow does not have a
uniform
definition and its title does not describe how it is calculated.
Accordingly, please include a clear description of its
calculation.
In addition, all material limitations of the measure should be
disclosed. Please comply in future filings.
6. We see that your operating results (as measured by net income
(loss) before the cumulative effect of the accounting change in
2002)
have improved in each of the three years presented, while cash
flows
from operations has decreased in each year over that same period.
In
future filings, please specifically address that unusual
relationship
in the discussion of cash flows from operations.
Quantitative and Qualitative Disclosures about Market Risk - Page
29
7. In future filings please provide summarized comparable
information
for the preceding fiscal year as required by Item 305 of
Regulation
S-K.
Consolidated Financial Statements
Consolidated Statements of Cash Flows - Page 39
8. The sub-total of net income and "non-cash and other reconciling
items" is not contemplated in FAS 95. As well, that measure
appears
to be a non-GAAP measure embedded on the face of the statement of
cash flows. Pursuant to Item 10(e)(ii)(C) to Regulation S-K you
may
not present a non-GAAP measure on the face of the basic financial
statements. Please delete the referenced sub-total from all
future
filings.
Note 1. Summary of Significant Accounting Policies - Page 40
Long-lived Assets
9. Please expand future filings to make more detailed and specific
disclosure about how you identify and measure impairment of long-
lived assets. Also make disclosures about how you measure fair
value
and describe the nature and extent of estimates and uncertainties
that are inherent to that process. With respect to your methods
and
related estimates and uncertainties, please consider whether you
should make more robust critical accounting estimates disclosure.
Goodwill
10. Please expand future filings to make more detailed and
specific
about how you identify and measure goodwill impairment. Clarify
in
expanded disclosure how you apply the requirements of FAS 142.
Also
disclose how you measure fair value for purposes of this exercise,
including a description of the nature and extent of estimates and
uncertainties that are inherent to that process. With respect to
your
methods and related estimates and uncertainties, please consider
whether you should make more robust critical accounting estimates
disclosure. We do see the disclosures in Note 6; however, that
discussion appears to only address the transitional evaluation.
Foreign Currency Translation
11. Unless insignificant, you should also disclose the amount of
the
foreign currency transaction gain or loss included in earnings for
each period. Refer to FAS 52. Apply in future filings.
Income Taxes
12. Please also disclose the unrecognized deferred tax liability
for
temporary differences related to investments in foreign
subsidiaries
that are essentially permanent in duration if determination of
that
liability is practicable. Alternatively, make a statement that
the
determination is not practicable. Refer to paragraph 44(c) of
SFAS
109. Apply in future filings.
Revenue Recognition
13. We see from page 6 that there are instances where Avnet-owned
product is stored at customer facilities. Tell us more about the
nature and extent of these arrangements, including how this
inventory
is accounted for and controlled. Also tell us when you recognize
revenue on that product. That is, how do you determine the timing
of
that revenue?
14. Please make disclosure about how you estimate discounts,
rebates
and returns. Unless insignificant, please also make more detailed
and specific disclosure about the nature and extent of discount
and
rebate programs and return policies. Apply in future filings.
Note 4. Comprehensive Income (Loss) - Page 46
15. Please disclose the amounts of income taxes, if any, netted
against the cumulative pension adjustment. We presume that income
taxes have not been netted against the translation adjustment.
Refer
to FAS 130. Apply in future filings.
Note 8. Accrued Expenses and Other - Page 50
16. We see the magnitude of accrued income taxes as of December
2003.
We also see from Note 15 that you received net income tax refunds
in
2003 and 2004 and the amounts of the current provisions as
disclosed
in Note 9. Combined, the disclosures suggest that you may have
material accruals for income tax contingencies. Tell us whether
this
caption does in fact include accruals for income tax
contingencies,
and, if so, the amounts as of each balance sheet date. Paragraph
9
of FAS 5 states that disclosure of the nature of a contingency
accrual and, in some circumstances the amount accrued, may be
necessary for the financial statements not to be misleading. The
notes to financial statements should include a reasonably
transparent
description of the nature of any accruals for income tax
contingencies. As well, disclosures about any material amounts
should also reflect the requirements of paragraphs 13 and 14 of
SOP
94-6. We are aware, for instance, that multinational companies
often
have material accruals for transfer pricing and other cross-border
exposures. Expand your disclosures in future filings or tell us
how
your disclosures about tax contingencies comply with GAAP.
17. As a related matter, we see that your critical accounting
policy
disclosure (page 22) addresses uncertainties related to
realization
of deferred income taxes. Please consider whether that disclosure
should also address uncertainties related to positions taken on
tax
returns and the potential for material adjustments to recorded
income
tax liabilities. Apply in future filings.
Note 12. Stock Based Compensation Plans - Page 55
18. Confirm to us that you have included pro forma compensation
expense related to your employee stock purchase plan in the SFAS
148
disclosure presented in Note 1. If not, please explain.
Additionally, in future filings please disclose the number of
shares
issued under the employee stock purchase plan and outside director
stock bonus plan for each of the years presented.
Note 16. Segment Information - Page 59
19. In future filings please discuss material changes in corporate
expenses in MD&A. We see, for instance, that such expenses
increased
by $15 million in 2003.
20. Please expand to more fully comply with paragraph 38 to FAS
131.
Pursuant to that guidance you should also disclose sales and long-
lived assets attributed to the United States and attributed to all
foreign jurisdictions in total. You should also disclose those
amounts for any particular foreign jurisdiction where the amounts
are
material. Please note that the long-lived asset disclosure
specified
by paragraph 38b should include only tangible assets. Refer to
the
FASB publication "Segment Information: Guidance on Applying
Statement
131." Please apply in future filings.
Note 17. Restructuring and Other Charges - Page 61
21. In future filings please disaggregate the exit cost roll-
forwards
to show separate activity for each significant exit plan. The
tables
and related narrative disclosures should separately clarify the
status of each significant exit plan at year-end.
Forms 8-K dated August 11, 2004 and October 28, 2004
22. We see that your earnings releases furnished on Form 8-K
present
non-GAAP measures in the form of a statements of operations. That
format may be confusing to investors because it presents several
non-
GAAP measures, including non-GAAP operating income, non-GAAP pre-
tax
earnings and non-GAAP net income. It is not clear whether
management
in fact uses each of these non-GAAP measures, or whether they are
shown here as a result of the presentation format. When furnishing
information under Item 2.02 to Form 8-K, you must provide all the
disclosures required by Item 10(e)(1)(i) to Regulation S-K,
including
explaining why you believe the measures provide useful information
to
investors. Your disclosures should separately address each non-
GAAP
measure with discussion specific to each measure. That discussion
should not be generic or boiler plate. In future filings, to
eliminate investor confusion please remove the pro forma
statements
of operations and disclose only those non-GAAP measures used by
management with the appropriate reconciliations. Otherwise,
confirm
that you will expand future Forms 8-K to provide all of the
disclosures required by Item 10(e)(1)(i) to Regulation S-K for
each
non-GAAP measure presented. Show us how you plan to comply.
23. In addition, we see that you refer to non-GAAP information as
"pro forma." The pro forma terminology has very specific meaning
in
accounting literature, as described in Article 11 of Regulation S-
X.
In future filings, please revise to omit the word "pro forma" when
describing the non-GAAP information included in your earnings
releases.
* * * *
As appropriate, please respond to these comments within 10
business days or tell us when you will provide us with a response.
Please furnish a cover letter with your response that keys your
responses to our comments and provides any requested supplemental
information. Detailed cover letters greatly facilitate our
review.
Please file your cover letter on EDGAR. Please understand that we
may have additional comments after reviewing your responses to our
comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require.
Since the company and its management are in possession of all
facts
relating to a company`s disclosure, they are responsible for the
accuracy and adequacy of the disclosures they have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that
* the company is responsible for the adequacy and accuracy of the
disclosure in the filings;
* staff comments or changes to disclosure in response to staff
comments in the filings reviewed by the staff do not foreclose the
Commission from taking any action with respect to the filing; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filing or in
response to our comments on your filing.
You may contact Kristin Lochhead, Staff Accountant, at (202) 942-
8972
or me at (202) 942-2862 if you have any questions. In this
regard,
do not hesitate to contact Martin James, the Senior Assistant
Chief
Accountant, at (202) 942-1984.
Sincerely,
Gary Todd
Reviewing Accountant
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Mr. Sadowski
Avnet, Inc.
December 14, 2004
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