SECURITIES AND EXCHANGE COMMISSION
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
For the quarterly period ended March 28, 2003
Commission File #1-4224
Avnet, Inc.
Incorporated in New York
IRS Employer Identification No. 11-1890605
2211 South 47th Street,
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ No o
The total number of shares outstanding of the registrant’s Common Stock (net of treasury shares) as of April 25, 2003 119,499,738 shares.
AVNET, INC. AND SUBSIDIARIES
INDEX
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| Forward-Looking Statements | 2 | |||||
| PART I. FINANCIAL INFORMATION: | ||||||
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Item 1.
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Financial Statements: | |||||
| Consolidated Balance Sheets at March 28, 2003 and June 28, 2002 | 3 | |||||
| Consolidated Statements of Operations for the third quarters and nine months ended March 28, 2003 and March 29, 2002 | 4 | |||||
| Consolidated Statements of Cash Flows for the nine months ended March 28, 2003 and March 29, 2002 | 5 | |||||
| Notes to Consolidated Financial Statements | 6 | |||||
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Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 14 | ||||
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk | 25 | ||||
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Item 4.
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Controls and Procedures | 26 | ||||
| PART II. OTHER INFORMATION: | ||||||
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Item 1.
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Legal Proceedings | 27 | ||||
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Item 6.
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Exhibits and Reports on Form 8-K | 28 | ||||
| Signature Page | 29 | |||||
| Certification of Chief Executive Officer | 30 | |||||
| Certification of Chief Financial Officer | 31 | |||||
1
FORWARD-LOOKING STATEMENTS
This Report contains forward-looking statements with respect to the financial condition, results of operations and business of Avnet, Inc. and subsidiaries (“Avnet” or the “Company”). You can find many of these statements by looking for words like “believes,” “expects,” “anticipates,” “estimates” or similar expressions in this Report or in documents incorporated by reference in this Report.
These forward-looking statements are subject to numerous assumptions, risks and uncertainties. Factors that may cause actual results to differ materially from those contemplated by the forward-looking statements include the following:
| • | Continuation or worsening of the current technology industry down-cycle, particularly the semiconductor sector, would adversely affect Avnet’s expected operating results. | |
| • | Competitive pressures among distributors of electronic components and computer products may increase significantly through entry of new competitors or otherwise. | |
| • | General economic or business conditions, domestic and foreign, may be less favorable than management expected, resulting in lower sales and declining operating results which can, in turn, impact the Company’s credit ratings, debt covenant compliance and liquidity, as well as the Company’s ability to maintain existing unsecured financing or to obtain new financing. | |
| • | Legislative or regulatory changes may adversely affect the businesses in which Avnet is engaged. | |
| • | Adverse changes may occur in the securities markets. | |
| • | Changes in interest rates and currency fluctuations may reduce Avnet’s profit margins. | |
| • | Avnet may be adversely affected by the allocation of products by suppliers. |
Because forward-looking statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by them. Management cautions you not to place undue reliance on these statements, which speak only as of the date of this Report.
Avnet does not undertake any obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
2
PART I
FINANCIAL INFORMATION
AVNET, INC. AND SUBSIDIARIES
See Notes to Consolidated Financial Statements.
3
AVNET, INC. AND SUBSIDIARIES
See Notes to Consolidated Financial Statements.
4
AVNET, INC. AND SUBSIDIARIES
See Notes to Consolidated Financial Statements.
5
AVNET, INC. AND SUBSIDIARIES
1. In the opinion of management,
the accompanying unaudited interim consolidated financial
statements contain all adjustments necessary, all of which are
of a normal recurring nature, except for the cumulative effect
of change in accounting principle discussed in Note 4, the
debt extinguishment costs discussed in Note 5 and the
special charges discussed in Note 12, to present fairly the
Company’s financial position, results of operations and
cash flows. For further information, refer to the consolidated
financial statements and accompanying notes included in the
Company’s Annual Report on Form 10-K for the fiscal
year ended June 28, 2002.
2. The results of operations for
the nine months and third quarter ended March 28, 2003 are
not necessarily indicative of the results to be expected for the
full year.
3. Accounts receivable
securitization:
In June 2001, the Company entered into a five-year accounts
receivable securitization program (the “Program”) with
a financial institution. The Program allows the Company to sell,
on a revolving basis, an undivided interest of up to
$350,000,000 in eligible U.S. receivables while retaining a
subordinated interest in a portion of the receivables. The
eligible receivables are sold without legal recourse to third
party conduits through a wholly owned bankruptcy-remote special
purpose entity that is consolidated for financial reporting
purposes. The Company continues servicing the sold receivables
and charges the third party conduits a monthly servicing fee at
market rates; accordingly, no servicing asset or liability has
been recorded. Cash received from the Program has been used
primarily to pay down outstanding external financing.
The Program qualifies for sale treatment under Statement of
Financial Accounting Standards No. 140, “Accounting
for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities.” As of March 28, 2003,
the Company had no drawings outstanding under the Program and
therefore there are no securitized accounts receivable held by
the third party conduits. As of June 28, 2002, the
outstanding balance of securitized accounts receivable held by
the third party conduits, net of applicable allowances, totaled
$324,570,000, of which the Company’s subordinated retained
interest was $124,570,000. Accordingly, $200,000,000 of accounts
receivable balances were removed from the consolidated balance
sheet at June 28, 2002, with those funds used to reduce
outstanding debt.
The Program agreement requires the Company to maintain minimum
senior unsecured credit ratings in order to continue utilizing
the Program in its current form. In December 2002, the Company
amended the Program agreement to lower the minimum ratings
triggers to Ba2 by Moody’s Investor Services
(“Moody’s”) or BB by Standard & Poors
(“S&P”).
4. Goodwill and impairment:
The Company adopted Statement of Financial Accounting Standards
No. 141 (“SFAS 141”), “Business
Combinations,” and Statement of Financial Accounting
Standards No. 142 (“SFAS 142”),
“Goodwill and Other Intangible Assets,” on the first
day of fiscal 2002. SFAS 141 requires that all business
combinations initiated after June 30, 2001 be accounted for
under the purchase method and that certain identifiable
intangible assets be recognized as assets apart from goodwill.
The Company has no other material identifiable intangible assets
besides goodwill. SFAS 142 requires that ratable
amortization of goodwill be replaced with periodic tests for
goodwill impairment. Therefore, the amortization of goodwill was
suspended effective from the adoption date forward and in all
periods presented herein.
The carrying amount of goodwill upon adoption of SFAS 142 on
June 30, 2001 was $1,404,863,000, net of accumulated
amortization through that date. Under the transitional
impairment provisions of SFAS 142, the Company identified and
evaluated its reporting units for impairment of goodwill as of
June 30, 2001 using a combination of present value and
multiple of earnings valuation techniques. The carrying amounts
of certain reporting units exceeded their fair values at the
date of adoption. As a result of the transition to
SFAS 142, the Company recorded an impairment charge of
$580,495,000, which was recorded in the consolidated statement
6
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
of operations as a cumulative effect of change in accounting
principle during the nine months ended March 29, 2002.
The following table presents the carrying amount of goodwill, by
reportable segment, for the nine months ended March 28,
2003:
Additions during the nine months ended March 28, 2003
related primarily to the acquisitions of the remaining minority
interests in Max India, Ltd. and Avnet Components Israel. The
“Other” caption above primarily represents the impact
of changes in foreign currency exchange rates on goodwill
denominated in currencies other than U.S. dollars.
During the first quarter of fiscal 2003, the Company and the
seller of certain European operations of the VEBA Electronics
Group (consisting of EBV, WBC, Atlas Logistics and RKE Systems)
resolved certain remaining purchase price contingencies related
to this acquisition, which was completed during fiscal 2001.
This resolution resulted in a refund to Avnet, totaling
approximately $6,486,000, of a portion of the amount paid by
Avnet at the closing of the acquisition. This refunded purchase
price was recorded as a reduction in operating expenses in the
consolidated statement of operations for the first quarter of
fiscal 2003 as the related goodwill had been written off as a
result of the transition impairment test performed upon the
adoption of SFAS 142.
5. External financing:
Short-term debt consists of the following:
Bank credit facilities consist of various committed and
uncommitted lines of credit with financial institutions utilized
primarily to support the working capital requirements of foreign
operations. The weighted average interest rates on the bank
credit facilities at March 28, 2003 and June 28, 2002
were 4.5% and 3.4%, respectively.
As of its acquisition of Kent Electronics Corporation
(“Kent”) on June 8, 2001, Avnet assumed
Kent’s 4.5% Convertible Notes due 2004 (the
“Notes”). During the first quarter of fiscal 2002,
virtually all holders of the Notes exercised their put options
by selling the Notes back to the Company. As of March 28,
2003 and
7
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
June 28, 2002, $3,031,000 in Notes remain outstanding. The
Company has the right to redeem all remaining Notes upon 30-day
prior notice.
Long-term debt consists of the following:
On February 6, 2003, the Company issued $475,000,000 of
9 3/4% Notes due February 15, 2008 (the
“9 3/4% Notes”). The net proceeds from this debt
issuance were approximately $465,312,000, net of underwriting
fees. During the quarter ended March 28, 2003, the Company
also redeemed $159,141,000 of its 6.45% Notes due
August 15, 2003 and $220,056,000 of its 8.20% Notes due
October 17, 2003. Proceeds from the 9 3/4% Notes were
used to fund the tender and early redemption of the 6.45% and
8.20% Notes. Proceeds of $79,531,000 from the 9 3/4% Notes
are held in an escrow account which will be used to repay the
remaining principal on the 6.45% and 8.20% Notes at their
respective maturity dates plus interest due through their
maturities. The Company incurred debt extinguishment costs of
$13,487,000 pre-tax, $8,152,000 after tax and $0.07 per share on
a diluted basis during the quarter ended March 28, 2003
related primarily to premiums and other transaction costs
associated with the tender and early redemption of a portion of
the 6.45% and 8.20% Notes.
During the nine months ended March 28, 2003, the Company
amended its syndicated bank credit facilities. Prior to these
most recent amendments, the bank credit facilities included a
multi-year credit facility with a syndicate of banks that
provided up to $428,750,000 in financing and a 364-day credit
facility providing up to $488,750,000 in financing (the original
syndicated bank credit facility also included a $82,500,000 term
loan facility that matured in November 2001). The multi-year
credit facility is a three-year revolving, multi-currency
facility that matures on October 25, 2004. The Company may
select from various interest rate options and maturities under
this facility.
The amended terms of the multi-year credit facility reduced the
available borrowings under the facility to $350,000,000.
Additionally, the 364-day credit facility was terminated as part
of the fiscal 2003 amendments. There were no drawings on the
364-day credit facility at the time of its termination.
The amended agreement also modifies the interest coverage ratio,
as defined therein, that the Company must maintain through the
remaining term of the agreement. The amended agreement did not
modify the other financial covenants of the bank credit
facilities. The Company was in compliance with all of the
covenants at March 28, 2003.
8
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
The amended agreement also contains a “springing lien”
provision whereby borrowings under the amended multi-year credit
facility will become secured by the inventory held by Avnet and
certain of its domestic and foreign subsidiaries, substantially
all of Avnet’s domestic real property, certain deposit
accounts, certain receivables and pledges of stock of certain
subsidiaries if (a) Avnet receives a debt rating of Ba1 or
lower by Moody’s or BB+ or lower by S&P or (b) if
Avnet terminates its current accounts receivable securitization
program (see Note 3) without simultaneously entering into
another securitization with similar terms.
The amended multi-year credit facility combined with the
accounts receivable securitization program provide the Company
with total available drawings of $700,000,000. As of
March 28, 2003, the Company has no borrowings outstanding
under the multi-year credit facility or drawings under the
accounts receivable securitization program.
Outstanding balances under the bank credit facilities at
June 28, 2002 consist primarily of foreign currency
borrowings under the multi-year credit facility described above
with a weighted average interest rate of 4.4%. The weighted
average interest rate on the commercial paper program was 3.7%
at June 28, 2002. The Company classifies borrowings under
its commercial paper program as long-term as it has the intent
and ability to refinance such borrowings under its multi-year
borrowing facility.
In November 2001, the Company entered into two interest rate
swaps (the “Swaps”) with a total notional amount of
$400,000,000 in order to hedge the change in fair value of the
8.00% Notes due November 2006 (the “8% Notes”) related
to fluctuations in interest rates. These contracts are
classified as fair value hedges and mature in November 2006. The
Swaps modify the Company’s interest rate exposure by
effectively converting the fixed rate on the 8% Notes to a
floating rate based on three-month U.S. LIBOR plus a spread
through their maturities (4.2% at March 28, 2003). The
hedged fixed rate debt and the Swaps are adjusted to current
market values through interest expense in the accompanying
consolidated statements of operations. The Company accounts for
the hedges using the shortcut method as defined under Statement
of Financial Accounting Standards No. 133, “Accounting
for Derivative Instruments and Hedging Activities,” as
amended by Statement of Financial Accounting Standards
No. 138, “Accounting for Certain Derivative
Instruments and Hedging Activities.” Due to the
effectiveness of the hedges since inception, the market value
adjustments for the hedged debt and the Swaps directly offset
one another. The fair value of the Swaps at March 28, 2003
and June 28, 2002 was $34,305,000 and $7,043,000,
respectively, and is included in other long-term assets in the
accompanying consolidated balance sheets. Additionally, included
in long-term debt is a comparable fair value adjustment
increasing the total liability by these same amounts.
6. From time to time, the Company
may become liable with respect to pending and threatened
litigation, tax, environmental and other matters. The Company
has been designated a potentially responsible party or has
become aware of other potential claims against it in connection
with environmental clean-ups at several sites. Based upon the
information known to date, the Company believes that it 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.
In connection with the Company’s January 2000 acquisition
of 84% of the stock of Eurotronics B.V., which went to market as
SEI, the Company entered into a share purchase agreement with
the sellers that called for an additional payment of cash or
common stock of the Company if the Company’s share price
does not reach $45.25 per share by January 2004. This guarantee
would result in an additional payment to the sellers of
approximately $80,800,000 based upon the Company’s stock
price as of March 28, 2003.
9
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
7. Number of shares of common stock
reserved for stock option and stock incentive programs as of
March 28,
2003: ... 12,487,733
The Company follows Accounting Principles Board Opinion
No. 25 (“APB 25”), “Accounting for
Stock Issued to Employees,” in accounting for its
stock-based compensation plans. In applying APB 25, no
expense was recognized for options granted under the various
stock option plans as the options granted during the periods
presented had exercise prices equal to the market value of the
underlying stock on the date of the grants. Statement of
Financial Accounting Standards No. 148, “Accounting
for Stock-Based Compensation — Transition and
Disclosure — An Amendment of FASB Statement
No. 123,” requires certain disclosure of the pro forma
impact on net income (loss) and earnings (loss) per
share as if a fair value-based method of measuring stock-based
compensation, as defined by Statement of Financial Accounting
Standards No. 123, “Accounting for Stock-Based
Compensation,” had been applied.
Reported and pro forma net income (loss) and earnings
(loss) per share are as follows:
8. Comprehensive income (loss):
10
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
The 4.5% convertible notes are excluded from the computation of
earnings (loss) per share in each period presented as the
effects were antidilutive. The effects of certain stock options
and restricted stock awards are also excluded from the
determination of the weighted average common shares for diluted
earnings (loss) per share in each of the periods presented
as the effects were antidilutive. Accordingly, in the third
quarter and nine months ended March 28, 2003, the effects
of approximately 10,798,000 and 10,883,000 shares, respectively,
and in the third quarter and nine months ended March 29,
2002, the effects of approximately 10,659,000 shares in each
period, related to stock options and restricted stock awards,
are excluded from the computation above.
10. Additional cash flow
information:
Other non-cash and other reconciling items primarily include the
provision for doubtful accounts and certain non-cash special
charges (See Note 12).
Interest and income taxes paid (refunded) in the first nine
months of fiscal 2003 and 2002 were as follows:
11
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
The Company manages its business based upon the operating
results of its three operating segments before special charges
(see Note 12). During the second quarter of fiscal 2003,
the approximate unallocated special charges related to
Electronics Marketing, Computer Marketing and Applied Computing,
respectively,
12
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
were $84,238,000, $19,103,000 and $2,213,000. The remaining
special charges recorded during the current fiscal year relate
to corporate activities.
Beginning in fiscal 2003, the Company allocated its remaining
goodwill, previously included in the total assets for
“Corporate,” to the applicable segment level in order
to better evaluate and measure performance of its segment
operations. The asset information as of June 28, 2002 in
the table above has been reclassified to disclose this
information on a basis consistent with the current year
presentation.
12. Special charges:
During the second quarter of fiscal 2003, the Company executed
certain actions as part of its ongoing cost reduction
initiatives and, accordingly, recorded a special charge totaling
$106,765,000 pre-tax, $65,750,000 after tax, or $0.54 per
diluted share for the second quarter. The entire pre-tax charge
is included in selling, general and administrative expenses in
the accompanying statements of operations. The charge consisted
of severance costs ($21,700,000 pre-tax), charges related to the
consolidation of selected facilities ($37,359,000 pre-tax) and
charges related to certain IT-related initiatives ($47,706,000
pre-tax).
Severance costs and charges related to the consolidation of
selected facilities were taken during the second quarter in
response to the current business environment. During the second
quarter, management identified a number of facilities in each of
the Company’s operating segments and geographic regions to
be consolidated into other existing facilities. The charges
relate to reserves for remaining non-cancelable lease
obligations, write-downs of the carrying value of certain owned
facilities to fair market value and write-downs to fair market
value of owned assets located in these leased and owned
facilities that have been vacated. All facilities identified for
consolidation had been vacated by the end of the third quarter
of fiscal 2003. Additionally, workforce reductions at these and
other facilities worldwide resulted in more than 750 personnel
to be terminated as part of the second quarter reorganization
plan. Also during the second quarter of fiscal 2003, management
evaluated and elected to discontinue a number of IT-related
initiatives that, in light of recent business restructurings, no
longer meet the Company’s return on investment standards
for continued use or development. These non-cash charges relate
to the write-off of capitalized hardware, software and software
licenses.
Of the special charge of $106,765,000, $59,027,000 represented
non-cash asset writedowns and $47,738,000 requires the use of
cash, of which $16,976,000 had been expended as of
March 28, 2003. The unutilized portion of the fiscal 2003
special charge at March 28, 2003 relates to severance
accruals, substantially all of which the Company expects to
utilize by the end of fiscal 2003, and contractual lease
commitments, substantially all of which are scheduled to be
utilized by the end of fiscal 2006. The unutilized portion of
special charges recorded prior to fiscal 2003 relate primarily
to contractual lease commitments, substantially all of which are
scheduled to be utilized by the end of fiscal 2007.
The following table summarizes the Company’s special charge
activity during the nine months ended March 28, 2003.
During fiscal 2003, there have been no material adjustments to
any reserves established during fiscal 2003 or before fiscal
2003 other than payment activity as detailed in “amounts
utilized” in the table below:
13
Item 2.
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
For a description of the Company’s critical accounting
policies and an understanding of the significant factors that
influenced the Company’s performance during the third
quarters and first nine months ended March 28, 2003 and
March 29, 2002, this “Management’s Discussion and
Analysis of Financial Condition and Results of Operations”
(“MD&A”) should be read in conjunction with the
Consolidated Financial Statements, including the related notes,
appearing in Item 1 of this Report as well as the
Company’s Annual Report on Form 10-K for the year
ended June 28, 2002.
OVERVIEW
Organization
Avnet, Inc. and its subsidiaries (the “Company” or
“Avnet”) is one of the world’s largest industrial
distributors, based on latest fiscal year sales, of electronic
components, enterprise network and computer equipment and
embedded subsystems. Avnet creates a vital link in the
technology supply chain that currently connects over 250 of the
world’s leading electronic component and computer product
manufacturers to a global customer base of over 100,000 original
equipment manufacturers (“OEMs”), contract
manufacturers, value-added resellers (“VARs”) and
end-users. Additionally, Avnet provides engineering design,
material management and logistic services, system integration
and configuration, and supply chain advisory services. The
Company currently consists of three operating groups,
Electronics Marketing (“EM”), Computer Marketing
(“CM”) and Applied Computing (“AC”), each
with operations in the major economic regions of the world: the
Americas, EMEA (Europe, Middle East and Africa) and Asia. A
brief summary of each operating group is provided below:
RESULTS OF OPERATIONS
In addition to disclosing financial results that are determined
in accordance with generally accepted accounting principles
(“GAAP”), the Company also discloses pro forma or
non-GAAP results of operations that exclude certain items.
Management believes that providing this additional information
is useful to the reader to better assess and understand
operating performance, especially when comparing results with
previous periods or forecasting performance for future periods.
Management believes the pro forma measures also help indicate
underlying trends in the business. Management also uses pro
forma measures to establish operational goals and, in some
cases, for measuring performance for compensation purposes.
However, analysis of results and outlook on a pro forma or
non-GAAP basis should be used as a complement to, and in
conjunction with, data presented in accordance with GAAP.
14
The following tables reconcile the Company’s GAAP results
to results excluding certain special items, which consist of
special charges recorded during the quarter ended
December 27, 2002 (see “Operating Expenses” and
Note 12 to the Consolidated Financial Statements appearing
in Item 1 of this Report) and debt extinguishment costs
(see “Financing” and Note 5 to the Consolidated
Financial Statements appearing in Item 1 of this Report),
for the quarter and nine months ended March 28, 2003 and
for the prior sequential quarter ended December 27, 2002:
15
16
Sales
The table below provides period sales for the Company and its
operating groups:
PERIOD SALES BY OPERATING GROUP AND GEOGRAPHY
The electronic component and computer products industry
continued operating through another stable, but relatively weak
technology marketplace during the third quarter of fiscal 2003.
The technology markets in which Avnet competes continued to
experience generally weak growth during the quarter with the
exception of the Asian electronic components markets where
semiconductor growth was especially strong. A large portion of
Avnet’s revenues comes from sales of semiconductors, which
are highly cyclical. Avnet’s sales, specifically within EM,
closely follow the strength or weakness of the worldwide
semiconductor market which continues to be stable but in a
down-cycle overall.
Consolidated sales of $2.34 billion were up
$126.0 million, or 5.7%, from the prior year third quarter
consolidated sales of $2.21 billion. The year-over-year
benefit is a result of the strengthened Euro as well as an
unusually strong quarter for CM, which benefited from some sales
carryover from its typically strong second quarter as discussed
further below. Consolidated sales are down slightly by
$6.2 million, or 0.3%, in comparison with the prior
sequential quarter consolidated sales of $2.35 billion. The
sequential decline is largely driven by the expected weaker
sales in the Company’s computer businesses (CM and AC)
where Avnet’s second fiscal quarter is historically the
strongest.
EM sales of $1.29 billion in the third quarter of fiscal
2003 were up $74.6 million, or 6.1%, over the prior year
third quarter sales of $1.22 billion. EM sales were up
sequentially from the second quarter of fiscal 2003 by
$86.3 million, or 7.2%. The largest contributor to this
growth, both year-over-year and sequentially, has been EM’s
sales in Asia. EM Asia’s sales of $227.4 million in
the third quarter of fiscal 2003 increased by
$78.8 million, or 53.1%, year-over-year, indicative of that
region’s continually growing presence in the electronic
component industry. Sequential growth in EM Asia was more modest
at $14.1 million or 6.6%. A
17
CM sales of $628.1 million during the quarter ended
March 28, 2003 improved by $76.4 million, or 13.9%,
over the third quarter of fiscal 2002. This trend is most
evident in the Americas as 80% or more of CM’s sales
typically originate from this region. A significant contributor
to the year-over-year improvement is the sizable sales
carryover, primarily in the Americas, from the December 2002
quarter, which is historically CM’s strongest quarter. The
carryover is partially a function of the timing of Avnet’s
fiscal periods. The second quarter, which ended on
December 27, 2002, allowed for two business days of
calendar 2002 to fall into Avnet’s third fiscal quarter
which, based upon the typical budgeting cycles of many of
CM’s large, calendar year-end customers, resulted in
certain of CM’s sizable calendar year-end sales to these
customers falling in Avnet’s third fiscal quarter. This
carryover partially mitigated what has historically been a
10-20% decline in revenues from the second fiscal quarter to the
third. As a result, CM’s revenues declined sequentially by
only $54.9 million, or 8.0%, from the second quarter of
fiscal 2003.
AC’s third quarter sales of $422.1 million declined by
$25.0 million, or 5.6%, from the prior year third quarter.
Similarly, third quarter sales at AC declined sequentially by
$37.6 million, or 8.2%, from the second quarter of fiscal
2003. The sequential decline was expected as AC, similar to CM,
typically experiences its strongest performance in the December
quarter. AC’s fiscal 2003 third quarter results were also
impacted by lower sales into the PC builder customer base. AC
has experienced ongoing pricing pressure for a number of
quarters primarily in its volume microprocessor and disk drive
businesses in the Americas and EMEA. Management continues to
evaluate its business model with respect to this customer group
in an effort to manage the impacts of these pricing trends,
which have created profitability levels on certain product that
management deems unacceptable. As a result, the Company will
likely exit certain low-profit, low return-on-capital-employed
business relationships during the fourth quarter of fiscal 2003.
While this will impact AC’s revenues, management expects
that the annualized expense reductions resulting from these
actions, estimated at approximately $10 million, will more
than offset any loss of sales. Management expects to record a
special charge of approximately a similar amount during the
fourth quarter of fiscal 2003 in its efforts to initiate this
change.
During the third quarter of fiscal 2003, sales by region, as
indicated in the table above, depicts the continued relative
importance of the Asia region, which increased to 11.5% of
consolidated sales across all three operating groups, up from
8.2% in the same quarter of fiscal 2002. The Company expects the
Asia region to continue to be a primary growth driver for Avnet
as this region is becoming a more vital link in the technology
supply chain. As a result, the trend of growth of the Asia
region as a percentage of consolidated sales will likely
continue as the Company continues to develop its business in
that region, specifically in the Peoples’ Republic of
China, where the Company continues to enhance its already
established position. As a result of the 2001 acquisition of
Sunrise Technology Ltd. and the organic growth of Avnet’s
existing businesses in the Peoples’ Republic of China and
other parts of Asia, management believes Avnet is well
positioned to capitalize on the transition of Americas-based OEM
customers to Asia.
As a result of the growth of Avnet’s foreign sales as a
percentage of consolidated sales, Avnet’s business is
increasingly exposed to risks of operating internationally. Such
risks include potential restrictions on transfer of funds,
foreign currency fluctuations, import and export duties and
value added taxes, import and export regulations that could
erode profit margins or restrict exports, changing foreign tax
laws and regulations,
18
For the first nine months ended March 28, 2003,
consolidated sales were $6.86 billion, up
$85.5 million, or 1.3%, compared with $6.78 billion
for the same period of fiscal 2002. This increase is driven
primarily by the improvement in sales in the third quarter of
fiscal 2003 as compared with the third quarter of fiscal 2002
which, as discussed above, is a result of the strengthened Euro
and an unusually strong third quarter for CM in the current
fiscal year. For the same nine-month period, sales for EM were
$3.74 billion, up $110.9 million, or 3.1%, over the
same period in fiscal 2002 and sales for CM were
$1.84 billion, up $14.8 million, or 0.8% from fiscal
2002. These increases were offset in part by AC sales of
$1.28 billion during the first nine months of fiscal 2003,
which were down $40.1 million, or 3.0%, from the same
period in fiscal 2002.
Gross Profit Margins
Consolidated gross profit margins for the third quarter of
fiscal 2003 were 13.12%, down 92 basis points compared with the
14.04% gross profit margins in the third quarter of fiscal 2002.
This decline in consolidated gross profit margins was primarily
attributable to mix of business issues, including the negative
impact of the increased volume of lower gross profit margin
computer product sales — specifically increased
software sales, which carry lower gross profit margins than most
other computer products.
EM accounted for 55.1% of consolidated sales for the third
quarter, up slightly from 54.9% in the prior year third quarter.
Management expects that the increased percentage of sales in
favor of EM will continue when technology markets gradually
improve into an anticipated up-cycle. Management also
anticipates that the higher gross profit margins realized in
prior up-cycles are achievable, and that levels currently
experienced are not the result of any structured change in the
industry, or of the markets the Company chooses to serve.
Gross profit margins for the first nine months of fiscal 2003
were 13.41% as compared with 13.88% during the same period for
fiscal 2002. This decrease of 47 basis points is also due to the
factors described above.
Operating Expenses
Operating expenses, which totaled $270.9 million for the
third quarter of fiscal 2003, were down $17.1 million, or
5.9%, from $288.0 million in operating expenses reported in
the third quarter of fiscal 2002. Operating expenses in the
third quarter of fiscal 2003 were down $119.9 million
sequentially from $390.8 million reported in the second
quarter of fiscal 2003. However, excluding the impact of certain
special charges incurred in the second quarter as further
described below, third quarter operating expenses are down
sequentially by $13.1 million, or 4.6%. The year-over-year
reduction in operating expenses is primarily a result of cost
reduction efforts and reorganizations initiated in the fourth
quarter of fiscal 2002 and in the second quarter of fiscal 2003,
each of which resulted in incremental special charges. The cost
reductions on a sequential basis, excluding special charges, are
offset in part by the strengthening of the Euro in the most
recent quarter. In constant dollars, the sequential reduction in
operating expenses, excluding special charges, would be
approximately $19.7 million. The constant dollar comparison
reflects the impact of applying the average foreign currency
exchange rates in effect in the second quarter of fiscal 2003 to
the third quarter of fiscal 2003 operating expenses of all
subsidiaries of Avnet with foreign functional currencies. This
comparison is meaningful to note the Company’s progress in
achieving the cost reduction efforts of more than
$90 million on an annualized basis that the Company
initiated during the second quarter of fiscal 2003.
The special charges impacting the results for the second quarter
of fiscal 2003 are explained in detail in Note 12 to the
Consolidated Financial Statements appearing in Item 1 of
this Report. The special charge of $106.7 million pre-tax
and $65.7 million after-tax, was taken as a result of
multiple cost reduction initiatives stemming from certain
reorganizations of the Company’s operations during the
second quarter of fiscal 2003.
As a percent of sales, operating expenses fell year-over-year
from 13.0% in the quarter ended March 29, 2002 to 11.6%.
The March 2003 quarter performance of 11.6% is the lowest level
of operating expenses as a percent of sales in eight consecutive
quarters of operation.
19
Operating expenses for the first nine months of fiscal 2003 were
$939.3 million compared with $889.7 million for the
same period of fiscal 2002. Excluding special charges discussed
above, operating expenses for the first nine months of fiscal
2003 were $832.5 million, down $57.2 million from the
same period of fiscal 2002.
Operating Income (Loss)
Consolidated operating income in the third quarter of fiscal
2003 was $36.2 million, an increase of $13.2 million
from the third quarter of fiscal 2002 and an increase of
$111.4 million from the prior sequential quarter. Excluding
the impact of special charges discussed above, consolidated
operating income in the third quarter of fiscal 2003 increased
by $4.6 million over the $31.6 million reported in the
second quarter of fiscal 2003. The significant improvement in
consolidated operating profit and operating profit margin is
primarily attributable to the cost reduction efforts implemented
across each of the Company’s operating groups during the
past nine months.
For the first nine months of fiscal 2003, the consolidated
operating loss was $19.0 million compared with income of
$50.4 million for the same time period in fiscal 2002.
However, excluding the impact of special items recorded during
fiscal 2003, the Company’s year-to-date consolidated
operating income was $87.8 million. This year-over-year
improvement, excluding special charges, represents a 74%
increase in operating income.
Interest Expense
Interest expense of $26.7 million for the third quarter of
fiscal 2003 was down slightly from $27.0 million in the
prior year third quarter, but up from $24.3 million in the
prior sequential quarter. The improvement year-over-year is a
function of the Company’s continued efforts to reduce its
debt with total reductions of approximately $1.85 billion
since December 2000. Interest expense increased sequentially by
$2.4 million primarily as a result of the higher interest
rates associated with the new bond issuance of
$475.0 million during the March quarter (see
“Financing” for further discussion). These bonds bear
interest at 9 3/4% per annum, a higher rate than the 6.45%
Notes due in August 2003 and the 8.20% Notes due in October 2003
that were partially redeemed during the quarter. Additionally,
the tender offer to retire the 6.45% and 8.20% Notes was open
for approximately a four week period during which the Company
also had the new 9 3/4% Notes outstanding. Finally, since
$70.8 million of the 6.45% and 8.20% Notes remain outstanding
after the redemptions completed in the third quarter, the
Company is incurring interest costs on both the outstanding
portions of the 6.45% and 8.20% Notes plus the 9 3/4% Notes.
Through the first nine months of fiscal 2003, interest expense
was $78.0 million as compared with $98.1 million for the
same period in fiscal 2002. This represents a 20.5% reduction in
interest expense attributable to the Company’s debt
reduction efforts. This reduction is attributable primarily to
the significant reductions of debt since December 2000.
Net Income (Loss)
As a result of the operational performance and other factors
described in preceding sections of this MD&A, the
Company’s consolidated net income for the third quarter of
fiscal 2003 was $1.5 million, or $0.01 per share on a
diluted basis. Excluding the debt extinguishment costs incurred
during the third quarter of fiscal 2003, the Company’s
consolidated net income was $9.6 million ($0.08 per share
on a diluted basis). The Company also benefited in the most
recent quarter from an increase in other income to
$6.4 million, net, an increase of $5.4 million on a
year-over-year basis. This other income consists primarily of
interest income and gains on foreign exchange. These results
compare with a third quarter fiscal 2002 loss of
$1.3 million, or $0.01 per share on a diluted basis.
The Company recorded a net loss of $57.7 million, or $0.48
per share on a diluted basis, for the first nine months of
fiscal 2003. The Company recorded net income of
$16.2 million ($0.13 per share on a diluted basis)
excluding the impact of special charges incurred during the nine
month period as discussed above. This compares with a loss of
$23.0 million, or $0.19 per share on a diluted basis,
before the cumulative effect of
20
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow
During the first nine months of fiscal 2003, cash generated from
income before depreciation, amortization, deferred taxes and
other non-cash items (primarily provisions for doubtful accounts
and non-cash special charges) totaled $68.5 million. During
that period, $484.7 million was generated by reductions in
working capital (excluding cash and cash equivalents). The
working capital reductions are primarily a result of the
Company’s efforts to improve its asset utilization and
efficiency by reducing its receivables and inventories in what
continues to be a relatively stable but weak electronic
components and computer products industry. Reductions in
receivables and inventories generated cash inflows of
$429.1 million during the first nine months of fiscal 2003
($236.6 million of these inflows were generated during the
third quarter). The Company’s efforts in these areas have
yielded consistent improvement since the industry down-cycle
began in both days’ sales outstanding and in inventory
turns with the latter ratio achieving its high point during this
current down-cycle of 6.8 turns in the March 2003 quarter.
The net cash flow from operations discussed above was
$553.2 million for the first nine months of fiscal 2003. In
addition, the Company used $13.4 million for other normal
business operations including purchases of property, plant and
equipment ($17.6 million, net of cash proceeds of
$9.0 million from property, plant and equipment sold during
the period) and cash generated by other items
($4.2 million). This resulted in $539.8 million, net,
being generated from normal business operations. Also during the
first nine months of fiscal 2003, the Company used
$7.5 million for acquisitions primarily of the remaining
minority interests in Max India, Ltd. and Avnet Components
Israel. This overall net generation of cash of
$532.3 million was used to reduce drawings under the
accounts receivable securitization program by
$200.0 million and to repay debt. As discussed below in
“Financing,” the Company also generated net cash
proceeds of $465.3 million from the February 2003 offering
of the 9 3/4% Notes due February 15, 2008 which was
used to redeem a significant portion of the 6.45% Notes and
8.20% Notes, both of which mature in calendar 2003. The net
repayment of debt was $655.7 million with a resulting net
increase in cash and cash equivalents of $141.9 million
during the first nine months of fiscal 2003.
Capital Structure and Contractual Obligations
The following table summarizes the Company’s capital
structure as of the end of the first nine months of fiscal 2003
as compared with fiscal 2002 year-end:
Capital Structure
The table above excludes amounts outstanding under Avnet’s
accounts receivable securitization program. The Company had
drawn $200.0 million at June 28, 2002 under this
program. There were no drawings at
21
For a description of the Company’s long-term debt and lease
commitments for the next five years and thereafter, see
Long-Term Contractual Obligations appearing in Item 7 in
the Company’s Annual Report on Form 10-K. With the
exception of pay downs of debt obligations discussed herein and
regularly scheduled lease payments, there are no material
changes to this information.
In connection with the Company’s January 2000 acquisition
of 84% of the stock of Eurotronics B.V., which went to market as
SEI, the Company entered into a share purchase agreement with
the sellers that called for an additional payment of cash or
common stock of the Company if the Company’s share price
does not reach $45.25 per share by January 2004. This guarantee
would result in an additional payment to the sellers of
approximately $80.8 million based upon the Company’s
stock price as of March 28, 2003.
Financing
On February 6, 2003, the Company issued $475.0 million
of 9 3/4% Notes due February 15, 2008 (the
“9 3/4% Notes”). The net proceeds from this debt
issuance were approximately $465.3 million, net of
underwriting fees. During the quarter ended March 28, 2003,
the Company also redeemed $159.1 million of its 6.45% Notes
due August 15, 2003 and $220.1 million of its 8.20%
Notes due October 17, 2003. Proceeds from the 9 3/4%
Notes were used to fund the tender and early redemption of the
6.45% and 8.20% Notes. Proceeds of $79.5 million from the
9 3/4% Notes are held in an escrow account which will be
used to repay the remaining principal on the 6.45% and 8.20%
Notes at their respective maturity dates plus interest due
through their maturities. The Company incurred debt
extinguishment costs of $13.5 million pre-tax,
$8.2 million after tax and $0.07 per share on a diluted
basis during the quarter ended March 28, 2003 related
primarily to premiums and other transaction costs associated
with the tender and early redemption of a portion of the 6.45%
and 8.20% Notes.
During the nine months ended March 28, 2003, the Company
amended its syndicated bank credit facilities. Prior to these
amendments, the bank credit facilities included a multi-year
credit facility with a syndicate of banks that provided up to
$428.8 million in financing and a 364-day credit facility
providing up to $488.7 million in financing(the original
syndicated bank credit facility also included a
$82.5 million term loan facility that matured in November
2001). The multi-year credit facility is a three-year revolving,
multi-currency facility that matures on October 25, 2004.
The Company may select from various interest rate options and
maturities under this facility.
The amended terms of the multi-year credit facility reduced the
available borrowings under the facility to $350.0 million.
Additionally, the 364-day credit facility was terminated as part
of the fiscal 2003 amendments. There were no drawings on the
364-day credit facility at the time of its termination.
The amended agreement also modifies the interest coverage ratio,
as defined therein, that the Company must maintain through the
remaining term of the agreement. The amended agreement did not
modify the other financial covenants of the bank credit
facilities. The Company was in compliance with all of the
covenants at March 28, 2003.
The amended agreement also contains a “springing lien”
provision whereby borrowings under the amended multi-year credit
facility will become secured by certain assets of the Company
and its subsidiaries if certain events occur. These events
include: (a) the establishment of a debt rating of Ba1 or
lower by Moody’s Investor Services
(“Moody’s”) or BB+ or lower by Standard and
Poor’s (“S&P”) or (b) the termination of
Avnet’s current accounts receivable securitization program
(see Note 3 to the Consolidated Financial Statements
appearing in Item 1 of this Report) without simultaneously
entering into another securitization with similar terms. There
were no borrowings outstanding on the facility at March 28,
2003. See further discussion of the Company’s liquidity at
“Liquidity Analysis.”
The amended multi-year facility does not prohibit the Company
from drawing upon its availability, if needed, to pay down
outstanding debt obligations as they come due.
22
The multi-year, 364-day and term loan facility discussed above
replaced, in October 2001, a $1.25 billion 364-day credit
facility with a syndicate of banks that expired upon its
maturity in that same month. The Company was able to select from
various interest rate options and maturities under this
facility, although the Company utilized the facility primarily
as back-up for its commercial paper program.
In November 2001, the Company issued $400.0 million of 8.0%
Notes due November 15, 2006 (the
“8% Notes”). The net proceeds received by the
Company from the sale of the 8% Notes were approximately
$394.3 million after deduction of the underwriting
discounts and other expenses associated with the sale. The net
proceeds from the 8% Notes were used to repay commercial paper
and other short-term indebtedness. The 8% Notes are hedged with
two interest rate swaps as discussed in Note 5 to the
Consolidated Financial Statements appearing in Item 1 of
this Report. The swaps effectively convert the 8% Notes from a
fixed rate to a floating rate based upon U.S. LIBOR plus a
spread. The Company accounts for the hedges using the shortcut
method as defined under Statement of Financial Accounting
Standards No. 133, “Accounting for Derivative
Instruments and Hedging Activities,” as amended by
Statement of Financial Accounting Standards No. 138,
“Accounting for Certain Derivative and Hedging
Activities.” Due to the effectiveness of the hedges since
inception, the market value adjustments for the hedged 8% Notes
and for the swaps directly offset one another in interest
expense.
In October 2001, Avnet Financial Services CVA, a wholly owned
subsidiary incorporated in Belgium, entered into an agreement
with a Belgian bank which provides for the issuance of up to
Euro 100 million in Treasury Notes. The Treasury Note
program is a multi-currency program pursuant to which short-term
notes may be issued with maturities from seven days to one year
with either fixed or floating rates of interest. This program is
intended to partially finance the working capital requirements
of the Company’s European operations.
In addition to its primary financing arrangements, the Company
has several small lines of credit in various locations to fund
the short-term working capital, foreign exchange, overdraft and
letter of credit needs of its wholly owned subsidiaries in
Europe and Asia. These facilities are generally guaranteed by
Avnet. The Company also has available to it certain vendor
financing programs for its payables, creating additional
flexibility for short-term financing needs.
Covenants and Conditions
The amended multi-year credit agreement described above contains
certain covenants with various limitations on total debt,
capital expenditures, investments and acquisitions, and require
that net worth, interest coverage and other ratios be maintained
at specific levels. Similarly, the receivable securitization
program contains certain covenants relating to the quality of
the receivables sold under the program. If these conditions are
not met, the Company may not be able to borrow any additional
funds under these facilities and might be required to repay any
amounts outstanding. Circumstances that could affect the
Company’s ability to meet the required financial covenants
and conditions in its various financing arrangements include the
duration and depth of the current economic downturn and its
impact on profitability, perceived financial strength or
weakness by credit rating agencies and various other economic,
market and industry factors. The Company was in compliance with
all covenants for these facilities at March 28, 2003.
The Company is also required to maintain minimum senior
unsecured credit ratings in order to continue using the
receivable securitization program in its present form. If the
Company’s credit rating is reduced to Ba2 or lower by
Moody’s or BB or lower by S&P — two grades
below the Company’s current rating levels, the Company may
be in default under the securitization program. Both the bank
credit facility and the securitization program contain certain
standard cross-default provisions, meaning that if there is a
default under one facility, such as a covenant breach or a
credit ratings trigger, that default can also trigger a default
under the other facility. If any event of default occurs, the
Company would either have to negotiate with the lenders to
modify the facilities or pay off all amounts outstanding,
terminate the facilities and, if necessary, seek alternative
financing.
See “Liquidity Analysis” for further discussion of the
Company’s availability under these various facilities.
23
Liquidity Analysis
Under its two primary borrowing facilities (the multi-year
credit facility and the accounts receivable securitization
program) the Company has total borrowing capacity of
$700.0 million against which there are no amounts
outstanding at March 28, 2003. The Company also has an
additional $301.2 million of cash and cash equivalents on
hand at March 28, 2003, although $79.5 million of that
cash on hand is in an escrow account and restricted to pay down
the remaining principal and interest on the 6.45% and 8.20%
Notes as discussed above in “Financing.” This
liquidity is more than sufficient for the Company to pay down
its $70.8 million of notes maturing in calendar 2003 and
its $103.0 million of notes maturing in calendar 2004 with
the remainder used, as necessary, to fund the working capital
and ongoing operational needs of the Company.
The following table highlights the Company’s liquidity
ratios as of the end of the third quarter of fiscal 2003 with a
comparison to the fiscal 2002 year-end:
Comparative Analysis Liquidity(1)
The Company’s quick assets at March 28, 2003 totaled
$1.80 billion as compared to $1.53 billion at
June 28, 2002. At March 28, 2003, quick assets were
greater than the Company’s current liabilities by
$456.8 million as compared with $256.4 million at the
end of fiscal 2002. The increase in quick assets is due in part
to the increase in cash and cash equivalents resulting from the
Company’s positive cash flows and financing transactions
completed during fiscal 2003 (see “Cash Flow” and
“Financing” above) as well as the increase in
receivables in the March 28, 2003 consolidated balance
sheet which resulted in large part from the reduced drawings
under the Company’s accounts receivable securitization
program in the most recent nine month period. Working capital at
March 28, 2003 was $1.71 billion as compared with
$1.93 billion at June 28, 2002. This decrease is
primarily a result of the previously discussed inventory
reductions since the end of fiscal 2002 offset in part by the
increases in quick assets. At March 28, 2003, to support
each dollar of current liabilities, the Company had $1.34 of
quick assets and $0.94 of other current assets for a total of
$2.28 as compared with $2.51 at June 28, 2002.
The Company does not currently have any material commitments for
capital expenditures.
24
Recently Issued Accounting Pronouncements
In June 2002, the FASB issued Statement of Financial Accounting
Standards No. 146 (“SFAS 146”),
“Accounting for Costs Associated with Exit or Disposal
Activities.” SFAS 146 supersedes former guidance
addressing the financial accounting and reporting for costs
associated with exit or disposal activities. SFAS 146
requires that a liability for a cost associated with an exit or
disposal activity be recognized and measured when the liability
is incurred (as opposed to upon the date of an entity’s
commitment to a plan as provided for under previous guidance).
The provisions of SFAS 146 are effective for any exit or
disposal activities that are initiated by the Company after
December 31, 2002.
In November 2002, the Emerging Issues Task Force
(“EITF”) reached a consensus on EITF Issue
No. 02-16, “Accounting by a Customer (Including a
Reseller) for Certain Consideration Received from a
Vendor.” EITF Issue No. 02-16 provides guidance as to
the classification and timing of recognition of supplier rebates
in the results of operations of the customer or reseller
receiving the rebate. Substantially all of Avnet’s rebates
are dependent on the resale of the product to Avnet’s
customers and the rebates are typically not awarded until Avnet
completes this sale. Avnet has historically accounted for these
rebates as a reduction of cost of sales and, therefore, EITF
Issue No. 02-16 did not have a material impact on the
Company.
In December 2002, the FASB issued Statement of Financial
Accounting Standards No. 148 (“SFAS 148”),
“Accounting for Stock-Based Compensation —
Transition and Disclosure — An Amendment of FASB
Statement No. 123.” SFAS 148 provides alternative
methods of transition for a voluntary change to the fair value
based method of accounting for stock-based employee compensation
and amends the disclosure requirements of Statement of Financial
Accounting Standards No. 123 (“SFAS 123”),
“Accounting for Stock Based Compensation,” to require
prominent disclosure in both annual and interim financial
statements regarding the method of accounting for stock-based
compensation. The Company continues to account for its
stock-based employee compensation under Accounting Principles
Board Opinion No. 25, “Accounting for Stock Issued to
Employees” as allowed, but has adopted the disclosure
provisions of SFAS 148 as indicated in Note 7 to the
Consolidated Financial Statements appearing in Item 1 of
this Report.
In January 2003, the FASB issued FASB Interpretation No. 46
(“FIN 46”), “Consolidation of Variable
Interest Entities,” which requires the consolidation of
variable interest entities (“VIEs”), as defined, based
upon an assessment of a company’s investment interests in
the VIE as it relates to the interests of other investors in the
VIE. FIN 46 also includes certain disclosure requirements
related to any VIEs. The consolidation requirements apply to any
VIEs created after January 31, 2003 and, for any VIEs that
existed prior to that date, the consolidation requirements are
effective with Avnet’s first quarter of fiscal 2004 to the
extent Avnet continues to hold an investment interest in any
such VIEs as of the first day of that quarter. Avnet is
currently completing its evaluation of the effect, if any, of
FIN 46 on its consolidated financial statements.
In April 2003, the FASB issued Statement of Financial Accounting
Standards No. 149 (“SFAS 149”),
“Amendment of Statement 133 on Derivative Instruments
and Hedging Activities,” which amends and clarifies
financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other
contracts. SFAS 149 will be effective for contracts entered
into or modified after June 30, 2003 and for hedging
relationships designated after June 30, 2003. The
provisions of SFAS 149 are to be applied prospectively.
The Company seeks to reduce earnings and cash flow volatility
associated with changes in interest rates and foreign currency
exchange rates by entering into financial arrangements intended
to provide a hedge against a portion of the risks associated
with such volatility. The Company continues to have exposure to
such risks to the extent they are not hedged.
See Item 7A, “Quantitative and Qualitative Disclosures
About Market Risk,” in the Company’s Annual Report on
Form 10-K for the year ended June 28, 2002 for
discussion of market risks associated with interest rates and
foreign currency exchange. Our exposure to foreign exchange
risks have not changed materially since
25
See “Liquidity and Capital Resources” for further
discussion of the Company’s financing facilities and
capital structure. As of March 28, 2003, 71% of the
Company’s debt bears interest at a fixed rate and 29% of
the Company’s debt bears interest at variable rates
(including as variable rate debt the $400.0 million 8.00%
Notes due November 15, 2006 due to the fair value hedge of
this debt (see “Financing” for further discussion)).
Therefore, a hypothetical 1.0% (100 basis point) increase in
interest rates would result in a $3.1 million impact on
income before income taxes in the Company’s consolidated
statement of operations for the nine months ended March 28,
2003.
The Company’s management, including its Chief Executive
Officer and Chief Financial Officer, have evaluated the
effectiveness of the Company’s disclosure controls and
procedures (as such term is defined in Rules 13a-14(c) and
15d-14(c) under the Securities Exchange Act of 1934 (the
“Exchange Act”)) as of a date within 90 days
prior to the filing of this quarterly report (the
“Evaluation Date”). Based on such evaluation, the
Company’s management has concluded that, as of the
Evaluation Date, the Company’s disclosure controls and
procedures are effective such that material information required
to be disclosed by the Company in the reports that it files or
submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified by
the Securities and Exchange Commission’s rules and forms
relating to the Company. The Company’s management has also
concluded that the Company’s disclosure controls and
procedures are designed to accumulate and communicate the
information required to be disclosed by Avnet to the
Company’s management, including the Chief Executive Officer
and the Chief Financial Officer, as appropriate to allow timely
decisions regarding required disclosure. No significant changes
were made in the Company’s internal controls or in other
factors that could significantly affect these controls
subsequent to the Evaluation Date.
26
Item 1.
Financial Statements
March 28,
June 28,
2003
2002
(Thousands, except
share amounts)
ASSETS:
$
301,204
$
159,234
1,496,964
1,374,017
1,112,073
1,417,305
145,574
254,976
3,055,815
3,205,532
263,206
349,924
853,593
844,597
269,528
281,901
$
4,442,142
$
4,681,954
LIABILITIES AND SHAREHOLDERS’
EQUITY:
$
196,901
$
59,309
828,581
891,234
315,863
326,293
1,341,345
1,276,836
1,277,265
1,565,836
36,292
34,772
2,654,902
2,877,444
119,509
119,431
568,399
569,437
1,030,355
1,088,008
69,116
27,812
(139
)
(178
)
1,787,240
1,804,510
$
4,442,142
$
4,681,954
Third Quarters Ended
Nine Months Ended
March 28,
March 29,
March 28,
March 29,
2003
2002
2003
2002
(Thousands, except per share data)
$
2,340,468
$
2,214,451
$
6,861,023
$
6,775,496
2,033,356
1,903,462
5,940,726
5,835,329
307,112
310,989
920,297
940,167
270,863
287,978
939,287
889,725
36,249
23,011
(18,990
)
50,442
6,390
961
16,987
4,750
(26,650
)
(26,959
)
(77,988
)
(98,131
)
(13,487
)
—
(13,487
)
—
2,502
(2,987
)
(93,478
)
(42,939
)
1,010
(1,736
)
(35,825
)
(19,905
)
1,492
(1,251
)
(57,653
)
(23,034
)
—
—
—
(580,495
)
$
1,492
$
(1,251
)
$
(57,653
)
$
(603,529
)
$
0.01
$
(0.01
)
$
(0.48
)
$
(0.19
)
$
0.01
$
(0.01
)
$
(0.48
)
$
(0.19
)
$
0.01
$
(0.01
)
$
(0.48
)
$
(5.10
)
$
0.01
$
(0.01
)
$
(0.48
)
$
(5.10
)
119,486
118,859
119,441
118,282
119,571
118,859
119,441
118,282
Nine Months Ended
March 28,
March 29,
2003
2002
(Thousands)
$
(57,653
)
$
(603,529
)
—
580,495
(57,653
)
(23,034
)
69,191
70,529
(35,501
)
(1,932
)
92,471
26,362
68,508
71,925
88,026
316,892
341,038
438,360
(76,085
)
69,468
131,750
(144,177
)
553,237
752,468
(200,000
)
(35,704
)
465,312
394,328
(379,197
)
(528,969
)
(275,246
)
(440,463
)
(1,274
)
(1,259
)
—
(26,543
)
(461
)
21,484
(390,866
)
(617,126
)
(26,595
)
(77,797
)
9,014
7,869
(7,504
)
(29,009
)
(25,085
)
(98,937
)
4,684
841
141,970
37,246
159,234
97,279
$
301,204
$
134,525
Electronics
Computer
Applied
Marketing
Marketing
Computing
Total
(Thousands)
$
591,398
$
253,199
$
—
$
844,597
8,474
—
—
8,474
(56
)
578
—
522
$
599,816
$
253,777
$
—
$
853,593
March 28,
June 28,
2003
2002
(Thousands)
$
21,988
$
54,158
3,031
3,031
40,859
—
29,944
—
100,000
—
1,079
2,120
$
196,901
$
59,309
March 28,
June 28,
2003
2002
(Thousands)
$
—
$
200,000
—
250,000
—
100,000
360,000
360,000
400,000
400,000
475,000
—
—
178,410
—
63,964
7,960
6,419
1,242,960
1,558,793
34,305
7,043
$
1,277,265
$
1,565,836
Third Quarters Ended
Nine Months Ended
March 28,
March 29,
March 28,
March 29,
2003
2002
2003
2002
(Thousands, except per share data)
$
1,492
$
(1,251
)
$
(57,653
)
$
(603,529
)
(3,374
)
(2,785
)
(9,701
)
(7,631
)
$
(1,882
)
$
(4,036
)
$
(67,354
)
$
(611,160
)
$
0.01
$
(0.01
)
$
(0.48
)
$
(5.10
)
$
(0.02
)
$
(0.03
)
$
(0.56
)
$
(5.17
)
Third Quarters Ended
Nine Months Ended
March 28,
March 29,
March 28,
March 29,
2003
2002
2003
2002
(Thousands)
$
1,492
$
(1,251
)
$
(57,653
)
$
(603,529
)
13,737
(13,767
)
41,304
(4,424
)
$
15,229
$
(15,018
)
$
(16,349
)
$
(607,953
)
9.
Earnings (loss) per share:
Quarters Ended
Nine Months Ended
March 28,
March 29,
March 28,
March 29,
2003
2002
2003
2002
(Thousands, except per share data)
$
1,492
$
(1,251
)
$
(57,653
)
$
(23,034
)
—
—
—
(580,495
)
$
1,492
$
(1,251
)
$
(57,653
)
$
(603,529
)
119,486
118,859
119,441
118,282
85
—
—
—
119,571
118,859
119,441
118,282
$
0.01
$
(0.01
)
$
(0.48
)
$
(0.19
)
—
—
—
(4.91
)
$
0.01
$
(0.01
)
$
(0.48
)
$
(5.10
)
$
0.01
$
(0.01
)
$
(0.48
)
$
(0.19
)
—
—
—
(4.91
)
$
0.01
$
(0.01
)
$
(0.48
)
$
(5.10
)
Nine Month Ended
March 28,
March 29,
2003
2002
(Thousands)
$
83,875
$
100,871
(172,947
)
18,174
11.
Segment information:
Third Quarters Ended
Nine Months Ended
March 28,
March 29,
March 28,
March 29,
2003
2002
2003
2002
(Thousands)
$
1,290,325
$
1,215,763
$
3,736,164
$
3,625,283
628,060
551,648
1,843,180
1,828,400
422,083
447,040
1,281,679
1,321,813
$
2,340,468
$
2,214,451
$
6,861,023
$
6,775,496
$
30,535
$
11,396
$
67,727
$
4,627
13,120
10,095
36,335
43,969
5,992
13,563
14,863
45,037
(13,398
)
(12,043
)
(31,150
)
(43,191
)
36,249
23,011
87,775
50,442
—
—
(106,765
)
—
$
36,249
$
23,011
$
(18,990
)
$
50,442
$
1,257,067
$
1,284,676
$
3,843,958
$
4,077,158
815,201
749,024
2,294,543
2,189,377
268,200
180,751
722,522
508,961
$
2,340,468
$
2,214,451
$
6,861,023
$
6,775,496
March 28,
June 28,
2003
2002
(Thousands)
$
2,728,343
$
2,940,788
758,075
888,190
396,952
513,840
558,772
339,136
$
4,442,142
$
4,681,954
$
2,748,405
$
2,892,410
1,295,887
1,443,996
397,850
345,548
$
4,442,142
$
4,681,954
IT-
Acquisition
Severance
Facility
Related
Reorganization
Integration
Costs
Exit Costs
Costs
Costs
Costs
Total
(Thousands)
$
—
$
—
$
—
$
8,075
$
21,322
$
29,397
21,700
37,359
47,706
—
—
106,765
13,557
14,962
47,484
6,860
7,327
90,190
$
8,143
$
22,397
$
222
$
1,215
$
13,995
$
45,972
•
EM markets and sells semiconductors interconnect, passive and
electromechanical devices and radio frequency/microwave
components. EM markets and sells its products and services to
all sizes of customers, spread across end-markets including
communications, computer hardware and peripheral, industrial and
manufacturing, medical equipment, and military and aerospace. EM
also offers an array of value-added services to its customers,
such as supply-chain management, engineering design, inventory
replenishment systems, connector and cable assembly and
semiconductor programming.
•
CM markets and sells enterprise computing products and
value-added services, including mid- to high-end servers,
storage and networking solutions. CM markets and sells its
products and services to the VAR channel and enterprise
computing customers.
•
AC markets and sells products and solutions including the latest
computer component technologies and embedded systems and
technical services, such as product prototyping, configuration,
integration and other value-added services. AC markets and sells
computer components and services to PC builders and
manufacturers of application-specific embedded computing
solutions in the non-PC marketplace. Primary end-markets include
medical equipment, communications, industrial and manufacturing,
and digital creation.
Third Quarter Ended March 28, 2003
Results as
Special
Adjusted
Reported
Items
Results
$
2,340,468
$
—
$
2,340,468
2,033,356
—
2,033,356
307,112
—
307,112
270,863
—
270,863
36,249
—
36,249
6,390
—
6,390
(26,650
)
—
(26,650
)
(13,487
)
13,487
—
2,502
13,487
15,989
1,010
5,335
6,345
$
1,492
$
8,152
$
9,644
$
0.01
$
0.07
$
0.08
$
0.01
$
0.07
$
0.08
119,486
119,486
119,486
119,571
119,571
119,571
Nine Months Ended March 28, 2003
Results as
Special
Adjusted
Reported
Items
Results
$
6,861,023
$
—
$
6,861,023
5,940,726
—
5,940,726
920,297
—
920,297
939,287
(106,765
)
832,522
(18,990
)
106,765
87,775
16,987
—
16,987
(77,988
)
—
(77,988
)
(13,487
)
13,487
—
(93,478
)
120,252
26,774
(35,825
)
46,350
10,525
$
(57,653
)
$
73,902
$
16,249
$
(0.48
)
$
0.61
$
0.13
$
(0.48
)
$
0.61
$
0.13
119,441
119,441
119,441
119,441
119,441
119,441
Second Quarter Ended December 27, 2002
Results as
Special
Adjusted
Reported
Items
Results
$
2,346,665
$
—
$
2,346,665
2,031,099
—
2,031,099
315,566
—
315,566
390,758
(106,765
)
283,993
(75,192
)
106,765
31,573
4,658
—
4,658
(24,306
)
—
(24,306
)
(94,840
)
106,765
11,925
(36,183
)
41,015
4,832
$
(58,657
)
$
65,750
$
7,093
$
(0.49
)
$
0.54
$
0.05
$
(0.49
)
$
0.54
$
0.05
119,419
119,419
119,419
119,419
119,419
119,419
Q3-03
Q2-03
Sequential
Q3-02
Year - Year
(Mar-03)
(Dec-02)
% Change
(Mar-02)
% Change
(Dollars in thousands)
$
2,340,468
$
2,346,665
(0.3
)%
$
2,214,451
5.7
%
1,290,325
1,204,074
7.2
1,215,763
6.1
628,060
682,910
(8.0
)
551,648
13.9
422,083
459,681
(8.2
)
447,040
(5.6
)
$
585,175
$
584,830
0.1
%
$
662,550
(11.7
)%
477,722
405,948
17.7
404,632
18.1
227,428
213,296
6.6
148,581
53.1
$
520,279
$
567,947
(8.4
)%
$
440,637
18.1
%
100,786
105,455
(4.4
)
104,788
(3.8
)
6,995
9,508
(26.4
)
6,223
12.4
$
151,613
$
161,005
(5.8
)%
$
181,489
(16.5
)%
236,693
278,722
(15.1
)
239,604
(1.2
)
33,777
19,954
69.3
25,947
30.2
$
1,257,067
$
1,313,782
(4.3
)%
$
1,284,676
(2.2
)%
815,201
790,125
3.2
749,024
8.8
268,200
242,758
10.5
180,751
48.4
March 28,
June 28,
2003
2002
(Thousands)
$
196,901
$
59,309
1,277,265
1,565,836
1,474,166
1,625,145
1,787,240
1,804,510
$
3,261,406
$
3,429,655
March 28,
June 28,
2003(2)
2002
% Change
(Dollars in thousands)
$
3,055,815
$
3,205,532
(4.7
)%
1,798,168
1,533,251
17.3
1,341,345
1,276,836
5.1
1,714,470
1,928,696
(11.1
)
1,474,166
1,625,145
(9.3
)
3,261,406
3,429,655
(4.9
)
1.3:1
1.2:1
2.3:1
2.5:1
45.2
%
47.4
%
(1)
Excludes (i) receivables that have been sold from current
and quick assets and (ii) amounts outstanding under the
Company’s accounts receivable securitization program from
debt which totaled $200.0 million at June 28, 2002.
There were no drawings on the accounts receivable securitization
program at March 28, 2003. See Note 3 to the
Consolidated Financial Statements appearing in Item 1 of
this Report.
(2)
Ratios that include cash and cash equivalents include
$79.5 million of restricted cash held in escrow at
March 28, 2003 to fund remaining principal and interest
payments on the 6.45% and 8.20% Notes (see “Financing”
for further discussion).
Item 3.
Quantitative and Qualitative Disclosures About Market
Risk
Item 4.
Controls and Procedures
PART II
OTHER INFORMATION
In October 1993 Avnet and the former owners of an Avnet-owned
site in Oxford, North Carolina entered into a Consent Decree and
Court Order with the Environmental Protection Agency (the
“EPA”) for the environmental clean-up of the site, the
cost of which, according to the EPA’s remedial
investigation and feasibility study, was estimated to be
approximately $6.3 million, exclusive of approximately
$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 Avnet and the former
owners of the site in May 1993, the former owners have agreed to
bear at least 70% of the clean-up costs of the site, and Avnet
will be responsible for not more than 30% of those costs.
On September 26, 2002, Avnet’s subsidiary, Sterling
Electronics Corporation (“Sterling”), was added as a
defendant in an existing lawsuit filed in the Superior Court of
California, County of Los Angeles, by property owners and
residents in or near the San Gabriel Valley Superfund Site. This
master case is a consolidation of six different matters filed
during the period from July 1997 through November 2001. Sterling
once owned 92.46% of the capital stock of Phaostron, Inc., which
has been named as a PRP for contamination at the site. In March
2003, the court dismissed all six cases on technical grounds,
but allowed the plaintiffs the opportunity to properly serve
newly-added industrial defendants, including Sterling, in any
case not yet outside the mandatory service period. In four of
the six cases, the applicable service period has expired.
Sterling, therefore, cannot be re-added to those cases as a
defendant. In the remaining two cases, the plaintiffs have until
January 1, 2004 and November 30, 2004, respectively,
to re-add Sterling as a defendant in the master case and
properly perfect service of process on Sterling. Those
plaintiffs have not indicated a monetary amount sought in this
matter. Avnet believes that Sterling has meritorious defenses to
liability, and, although the ultimate outcome is uncertain,
based on current information, Avnet does not believe that its
liability for this matter, if any, will be material to its
financial position, cash flow or results of operations.
Avnet is a PRP at a manufacturing site in Huguenot, New York
currently under investigation by the New York State Department
of Environmental Conservation (“NYSDEC”), which site
Avnet owned from the mid-1960s until the early-1970s. The
estimated cost of the first phase of the environmental clean-up
(to remediate contaminated soils) is approximately
$2.4 million based on an NYSDEC cost estimate. Avnet
currently is engaged in litigation to apportion these costs
among it and the current and former owners and operators of the
site. Based on current information, Avnet does not anticipate
its liability in the matter will be material to its financial
position, cash flow or results of operations.
Based on the information known to date, management believes that
Avnet has appropriately accrued in its consolidated financial
statements for its share of the costs associated with these
environmental clean-up sites.
The Company and/or its subsidiaries are also parties to various
other legal proceedings arising from time to time in the normal
course of business. While litigation is subject to inherent
uncertainties, management currently believes that the ultimate
outcome of these proceedings, individually and in the aggregate,
will not have a material adverse effect on the Company’s
financial position, cash flow or overall results of operations.
27
A. Exhibits
B. Reports on Form 8-K:
During the third quarter of fiscal 2003, the Company filed the
following Current Reports on Form 8-K: (1) Current
Report on Form 8-K bearing cover date of January 9,
2003 in which the Company reported under Item 9 that it had
issued a press release announcing that the second quarter of
fiscal 2003 corporate update conference call would be held on
January 23, 2003; (2) Current Report on Form 8-K
bearing cover date of January 23, 2003 in which the Company
reported under Item 5 that it had issued a press release
announcing the second quarter of fiscal 2003 results;
(3) Current Report on Form 8-K bearing cover date of
January 27, 2003 in which the Company reported under
Item 9 that it had issued a press release announcing the
tender offer for its 6.45% Notes due August 2003 and its 8.20%
Notes due October 2003; (4) Current Report on Form 8-K
bearing cover date of January 31, 2003 in which the Company
filed exhibits under Item 7 containing the pricing
agreement, indenture, officers’ certificate, opinion of
general counsel and computation of earnings to fixed charges
related to the Company’s $475 million 9 3/4%
Notes due February 2008; (5) Current Report on
Form 8-K bearing cover date of February 3, 2003 in
which the Company reported under Item 9 that it had issued
a press release announcing the pricing of its $475 million
9 3/4% Notes due February 2008; (6) Current Report on
Form 8-K bearing cover date of February 6, 2003 in
which the Company reported under Item 9 that it had issued
a press release announcing the completion of the
$475 million 9 3/4% Notes offering and the amendment
of the Company’s tender offer for its 6.45% Notes due
August 2003 and its 8.20% Notes due October 2003;
(7) Current Report on Form 8-K bearing cover date of
February 20, 2003 in which the Company reported under
Item 9 that it had issued a press release announcing its
participation in the upcoming Goldman Sachs Technology
Investment Symposium; (8) Current Report on Form 8-K
bearing cover date of February 27, 2003 in which the
Company reported under Item 9 that it had issued a press
release announcing its participation in the upcoming Morgan
Stanley Semiconductor and Systems Conference and the Raymond
James 24th Annual Institutional Investors Conference; and
(9) Current Report on Form 8-K bearing cover date of
March 3, 2003 in which the Company reported under
Item 9 that it had issued a press release announcing that
it had closed its tender offer for its 6.45% Notes due August
2003 and its 8.20% Notes due October 2003.
28
Item 1.
Legal Proceedings
Item 6.
Exhibits and Reports on Form 8-K
Restated Certificate of Incorporation of the
Company (incorporated herein by reference to the Company’s
Report on Form 8-K dated February 12, 2001,
Exhibit 3(j)).
By-laws of the Company, effective July 27,
2001 (incorporated herein by reference to the Company’s
Current Report on Form 8-K dated September 25, 2001,
Exhibit 4).
Note: The total amount of securities authorized
under any instrument which defines the rights of the 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.
Seventh Amendment to Credit Agreement dated as of
January 30, 2003 by and among the Company, the lenders
party thereto, and Bank of America, N.A., as Administrative
Agent.
Eighth Amendment to Credit Agreement dated as of
March 28, 2003 by and among the Company, the lenders party
thereto, and Bank of America, N.A., as administrative agent.
Certification by Roy Vallee, Chief Executive
Officer, under Section 906 of the Sarbanes-Oxley Act of
2002.
Certification by Raymond Sadowski, Chief
Financial Officer, under Section 906 of the Sarbanes-Oxley
Act of 2002.
SIGNATURES
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.
Date: May 9, 2003
29
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
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Roy Vallee, Chief Executive Officer of Avnet, Inc., certify
that:
Date: May 9, 2003
30
1. I have reviewed this quarterly
report on Form 10-Q of Avnet, Inc.;
2. Based on my knowledge, this
quarterly report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the
period covered by this quarterly report;
3. Based on my knowledge, the
financial statements, and other financial information included
in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant’s other
certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a. designed such disclosure
controls and procedures to ensure that material information
relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b. evaluated the effectiveness of
the registrant’s disclosure controls and procedures as of a
date within 90 days prior to the filing date of this
quarterly report (the “Evaluation Date”); and
c. presented in this quarterly
report our conclusions about the effectiveness of the disclosure
controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant’s other
certifying officer and I have disclosed, based on our most
recent evaluation, to the registrant’s auditors and the
audit committee of registrant’s board of directors (or
persons performing the equivalent function):
a. all significant deficiencies in
the design or operation of internal controls which could
adversely affect the registrant’s ability to record,
process, summarize and report financial data and have identified
for the registrant’s auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not
material, that involves management or other employees who have a
significant role in the registrant’s internal controls; and
6. The registrant’s other
certifying officer and I have indicated in this quarterly report
whether or not there were significant changes in internal
controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
/s/ ROY VALLEE
_______________________________________
Roy Vallee
Chief Executive Officer
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Raymond Sadowski, Chief Financial Officer of Avnet, Inc.,
certify that:
Date: May 9, 2003
31
1. I have reviewed this quarterly
report on Form 10-Q of Avnet, Inc.;
2. Based on my knowledge, this
quarterly report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the
period covered by this quarterly report;
3. Based on my knowledge, the
financial statements, and other financial information included
in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant’s other
certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a. designed such disclosure
controls and procedures to ensure that material information
relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b. evaluated the effectiveness of
the registrant’s disclosure controls and procedures as of a
date within 90 days prior to the filing date of this
quarterly report (the “Evaluation Date”); and
c. presented in this quarterly
report our conclusions about the effectiveness of the disclosure
controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant’s other
certifying officer and I have disclosed, based on our most
recent evaluation, to the registrant’s auditors and the
audit committee of registrant’s board of directors (or
persons performing the equivalent function):
a. all significant deficiencies in
the design or operation of internal controls which could
adversely affect the registrant’s ability to record,
process, summarize and report financial data and have identified
for the registrant’s auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not
material, that involves management or other employees who have a
significant role in the registrant’s internal controls; and
6. The registrant’s other
certifying officer and I have indicated in this quarterly report
whether or not there were significant changes in internal
controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
/s/ RAYMOND SADOWSKI
_______________________________________
Raymond Sadowski
Chief Financial Officer
Exhibit Index
Restated Certificate of Incorporation of the
Company (incorporated herein by reference to the Company’s
Report on Form 8-K dated February 12, 2001,
Exhibit 3(j)).
By-laws of the Company, effective July 27,
2001 (incorporated herein by reference to the Company’s
Current Report on Form 8-K dated September 25, 2001,
Exhibit 4).
Note: The total amount of securities authorized
under any instrument which defines the rights of the 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.
Seventh Amendment to Credit Agreement dated as of
January 30, 2003 by and among the Company, the lenders
party thereto, and Bank of America, N.A., as Administrative
Agent.
Eighth Amendment to Credit Agreement dated as of
March 28, 2003 by and among the Company, the lenders party
thereto, and Bank of America, N.A., as administrative agent.
Certification by Roy Vallee, Chief Executive
Officer, under Section 906 of the Sarbanes-Oxley Act of
2002.
Certification by Raymond Sadowski, Chief
Financial Officer, under Section 906 of the Sarbanes-Oxley
Act of 2002.
EXHIBIT 10A
EXECUTION VERSION
SEVENTH AMENDMENT TO CREDIT AGREEMENT
THIS SEVENTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as of January 30, 2003, is entered into by and among AVNET, INC., a New York corporation ("Avnet"), the lenders party to the Credit Agreement referred to below (each a "Lender" and, collectively, the "Lenders") and BANK OF AMERICA, N.A., as administrative agent for itself and the other Lenders (in such capacity, the "Administrative Agent").
RECITALS
A. Avnet, the Lenders and the Administrative Agent are parties to that certain Credit Agreement (Multi-Year) dated as of October 25, 2001, as amended or modified by that First Amendment to Credit Agreement (Multi-Year) dated as of March 29, 2002, that Second Amendment to Credit Agreement (Multi-Year) dated as of October 10, 2002, that certain letter agreement dated as of November 8, 2002, that Third Amendment to Credit Agreement dated as of November 23, 2002, that Fourth Amendment to Credit Agreement dated as of December 9, 2002, that Fifth Amendment to Credit Agreement dated as of December 12, 2002, and that Sixth Amendment to Credit Agreement dated as of December 13, 2002 (as so amended or modified, the "Credit Agreement"), pursuant to which the Administrative Agent and the Lenders have extended certain credit facilities to Avnet and certain of its Subsidiaries.
A. Avnet has requested that the Administrative Agent and the Lenders agree to certain amendments of the Credit Agreement.
A. The Administrative Agent and the Lenders are willing to amend the Credit Agreement subject to the terms and conditions of this Amendment.
NOW, THEREFORE, for valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Defined Terms. Unless otherwise defined herein, capitalized terms used herein shall have the meanings, if any, assigned to such terms in the Credit Agreement as amended hereby.
1. Amendments to Credit Agreement. The Credit Agreement shall be amended, effective as of the Effective Date, as follows:
(a) At Section 1.01, the defined term "Total Free Liquid Assets" shall be amended by deleting the word "and" before clause (c) and adding a new subsection (d) as follows:
"and (d) Permitted Investments made with the Net Proceeds of a Permitted Capital Markets Transaction to the extent subject to the Substantive Defeasement of any Capital Markets Notes having original stated maturities in year 2003 in accordance with Section 6.18"
(a) At Section 1.01, the following defined terms shall be amended and restated in their entirety as follows:
"Permitted Debt" means Debt of Avnet arising under or in connection with any Capital Markets Notes issued by Avnet after the Second Amendment Date, provided that: (a) such Debt has an original stated maturity of not less than three years, and no amortization of principal, including pursuant to any sinking fund arrangement; (b) such Debt provides no right of Mandatory Redemption, other than (i) one solely exercisable more than three years after the date of issuance, or (ii) arising solely upon a change of control event relating to Avnet that would constitute a Change of Control, or (iii) one arising solely upon certain asset sales, provided that the terms of such Debt allow Avnet to repay any and all Obligations prior to such Mandatory Redemption; (c) no instrument or agreement evidencing such Debt contains any maintenance-based debt covenants, nor any covenants or events of default that are more restrictive than may be customary at the time of issuance for non-investment grade rated public debt offerings, nor contain a Third Party Negative Pledge other than as expressly permitted by Section 6.20; (d) such Debt shall not be convertible or exchangeable into other Debt that is not itself Permitted Debt; (e) such Debt is not guaranteed, on the date such Debt is issued, by (nor, on the date such Debt is issued, subject to any agreement to provide any guaranty by) any Subsidiary of Avnet, other than Subsidiaries that on or before the date such guaranty is executed in favor of the holder of such Debt are required by the terms of this Agreement to execute and deliver to the Administrative Agent a Guaranty Agreement pursuant to Section 6.13(b); and (such Debt is not entitled to the benefit of any Lien, other than the right to share equally and ratably in certain Liens granted to third parties (other than the Lender Liens) on substantially the same terms as contained in the 2008 Senior Note Indenture.
"Substantive Defeasement" means, in respect of any outstanding Debt represented by Capital Markets Notes, that Avnet has irrevocably deposited funds with a bank, pursuant to an escrow or trust arrangement for the exclusive benefit of the holders of such Notes (or their trustee or agent), or otherwise in accordance with any express defeasance terms specified in the indenture governing such Capital Markets Notes, for the sole purpose of repaying such Notes, together with interest thereon in the amount anticipated to accrue up to the date of final payment.
(b) Section 1.01 shall be further amended by inserting the following new defined terms in the proper alphabetical order:
"Excess Amount" has the meaning set forth in Section 2.06(b)(ii).
"Preliminary Prospectus" has the meaning set forth in the definition of the "2008 Senior Notes."
"2008 Senior Note Indenture" means the terms of the October 2000 Indenture relating to the terms of the 2008 Senior Notes (including
any resolutions or officer's certificates relating to the terms of the 2008 Senior Notes).
"2008 Senior Notes" means Senior Notes (including convertible Senior Notes) to be issued by Avnet and described more particularly in that preliminary prospectus dated January 27, 2003 (the "Preliminary Prospectus") (provided that the terms thereof shall contain no material changes from the terms thereof described in the Preliminary Prospectus, unless approved by the Required Lenders), and any senior or senior subordinated notes issued pursuant to any supplemental or additional prospectus or offering circular issued in connection with the issuance of Capital Markets Notes on or before February 14, 2003, which are convertible into Avnet's common stock, having substantially the same or less restrictive terms as to covenants, events of default and other material provisions (other than convertibility, tenor and interest rate) as contained in the Preliminary Prospectus.
(c) Section 2.06(b) shall be amended by:
(i) Inserting the clause number "(i)" before the beginning of the first sentence thereof; and
(ii) Inserting a new clause (ii) at the end thereof as follows:
"(ii) If on the date 350 days after the consummation of a transaction giving rise to an "Asset Sale Amount" (as defined in the 2008 Senior Note Indenture), Avnet shall not have applied an amount equal to such Asset Sale Amount by:
(A) Investing or committing to invest (and in fact so investing within an additional 90 days) in "Related Business Assets" (as defined in the 2008 Senior Note Indenture) and property (except in connection with the acquisition of a wholly owned Subsidiary in a "Related Business" (as defined in the 2008 Senior Note Indenture), other than notes, bonds, obligation and securities); or
(B) Making certain investments permitted under the 2008 Senior Note Indenture, which in Avnet's good faith reasonable judgment will immediately constitute or be part of the Related Business of Avnet or the applicable Subsidiary (if it continues to be a Subsidiary) immediately following such transaction;
then the Aggregate Commitments shall, immediately and automatically on such date, be permanently reduced by an amount equal to the amount of such Asset Sale Amount not so applied (the "Excess Amount"). To the extent that the then Outstanding
Amount of all Loans and L/C Obligations exceeds the Aggregate Commitments as reduced by the Excess Amount, the Borrowers shall immediately upon the effectiveness of the reduction in Aggregate Commitments hereunder prepay Loans in an amount equal to the amount by which such Outstanding Amount of all Loans and L/C Obligations exceeds the Aggregate Commitments as reduced by the Excess Amount, plus interest and any amounts owing under Section 3.05, and, if after repayment of all Loans the resulting Outstanding Amount still exceeds the Aggregate Commitments as reduced by the Excess Amount, Cash Collateralize L/C Obligations in an amount equal to such remaining excess."
(d) Section 2.15 shall be amended by adding the following as new subsection (c) thereto:
"(c) If at any time Avnet or any of its Subsidiaries becomes obligated to grant immediately to the holders of the 2008 Senior Notes (or any agent or trustee acting on their behalf) a Lien pursuant to any equal and ratable collateral sharing provision contained in the 2008 Senior Note Indenture, Avnet shall be deemed to have granted, on its own behalf or on behalf of such Subsidiary, a Lender Lien upon any and all assets and property subject to such Lien, as security for the Obligations, such that the Obligations are equally and ratably secured together with the obligations under the 2008 Senior Notes. This Agreement shall be deemed a security agreement for purposes of the Uniform Commercial Code. Avnet shall thereafter immediately execute and deliver, or cause such Subsidiary to execute and deliver, such instruments, documents and agreements, in form and substance satisfactory to the Administrative Agent, and shall perform or cause to be performed such other acts, as may be necessary or appropriate in the discretion of the Administrative Agent to Perfect such Lender Lien."
(e) Section 6.01 shall be amended as follows:
(i) By deleting the word "or" at the end of subsection (q);
(ii) By renumbering subsection (r) as subsection (t); and
(iii) By inserting the following as new subsections (r) and (s):
"(r) prompt notice of the consummation of any transaction giving rise to an "Asset Sale Amount" (as defined in the 2008 Senior Note Indenture), other than any transaction that is not subject to compliance with the covenant described in the Preliminary Prospectus under the heading "Limitations on Sale of Assets and Subsidiary Stock; Offer to Repurchase from Excess Proceeds" and contained in the 2008 Senior Note
Indenture, setting forth the date of consummation and the amount of such Asset Sale Amount;
(s) if within 350 days after the consummation of a transaction giving rise to an "Asset Sale Amount" (as defined in the 2008 Senior Note Indenture), other than any transaction that is not subject to compliance with the covenant described in the Preliminary Prospectus under the heading "Limitations on Sale of Assets and Subsidiary Stock; Offer to Repurchase from Excess Proceeds" and contained in the 2008 Senior Note Indenture, Avnet shall not have applied an amount equal to such Asset Sale Amount as set forth in Section 2.06(b)(ii), immediate notice setting forth the applicable Excess Amount; or"
(f) Section 6.07 shall be amended at clause (n) thereof by deleting the final word "and", and at clause (o) thereof, by inserting the following immediately prior to the final period thereof:
";and
(p) Liens granted to holders of the 2008 Senior Notes (or any agent or trustee acting on their behalf) pursuant to any equal and ratable collateral sharing provision contained in the 2008 Senior Note Indenture, upon the creation of any Lien that is not a "Permitted Lien" (as defined in the 2008 Senior Note Indenture) ("Antecedent Lien"), provided and to the extent that such Antecedent Lien is a Permitted Lien hereunder."
(g) Section 6.08(b) shall be amended by adding the following proviso to the end thereof:
"and provided, further, that, other than any transaction that is not subject to compliance with the covenant described in the Preliminary Prospectus under the heading "Limitations on Sale of Assets and Subsidiary Stock; Offer to Repurchase from Excess Proceeds" and contained in the 2008 Senior Note Indenture, (1) at least 75% of the total consideration for any such Asset Sale shall consist of cash or cash equivalents or "Related Business Assets" (as defined in the 2008 Senior Note Indenture) and (2) Avnet shall determine in good faith that it or such Subsidiary is receiving fair market value for such Asset Sale."
(h) Section 6.13 shall be amended by:
(i) Inserting the clause number "(a)" before the beginning of the first sentence thereof; and
(ii) Inserting a new clause (b) at the end thereof as follows:
"(b) If at any time any Subsidiary of Avnet is then obligated immediately to guarantee any amounts on the 2008 Senior Notes, Avnet shall cause such Subsidiary immediately to guarantee the Obligations by
executing and delivering to the Administrative Agent such instruments, documents, agreements and opinions, in form and substance reasonably satisfactory to the Administrative Agent, as may be necessary or appropriate in the discretion of the Administrative Agent."
(i) Section 6.14(i) shall be amended by inserting after the phrase "in the ordinary course of business" the phrase ", or pursuant to documentation entered into substantially concurrently with the issuance of Capital Markets Notes on or before February 14, 2003, that are convertible into Avnet's common stock,".
(j) Section 6.17 shall be amended and restated in its entirety as follows:
"6.17 RESTRICTED PAYMENTS. Avnet shall not, and shall not permit any of its Subsidiaries to, (a) declare or pay any dividends in respect of its capital stock or other equity interests (other than dividends payable, but for fractional shares, solely in common stock of Avnet), or purchase, redeem, retire or otherwise acquire for value any of its capital stock or other equity interests now or hereafter outstanding, in each case other than pursuant to a Permitted Hedge Transaction, return any capital to its shareholders as such, or make any distribution of assets to its shareholders as such, or (b) other than solely with the proceeds of a Permitted Capital Markets Transaction to the extent permitted pursuant to Section 6.18, make any voluntary or optional prepayment or early repayment, early redemption, early exchange or early acquisition for value of, or establish any sinking fund with respect to, any Debt evidenced by Capital Markets Notes, in each case, other than the conversion of any Debt evidenced by Capital Markets Notes into the common stock of Avnet."
(k) Section 6.20 shall be amended and restated as follows:
"6.20 OTHER NEGATIVE PLEDGES. Avnet shall not, and shall not suffer or permit any of its Subsidiaries to, enter into or first become subject to after the Second Amendment Date any agreement or arrangement that directly or indirectly prohibits Avnet or any such Subsidiary from granting any Lien to the Administrative Agent (or restricting Perfection or enforcement of such Lien) with respect to any Springing Lien Assets or Collateral (a "Third Party Negative Pledge"), provided, that Avnet and its Subsidiaries may enter into or incur Third Party Negative Pledges (a) pursuant to an Acquisition permitted by Section 6.14(h), provided such Third Party Negative Pledge affects only assets and property so acquired and is not undertaken or incurred in contemplation of such Acquisition; or (b) pursuant to a transaction creating a Lien permitted by Section 6.07(b) or provided such Third Party Negative Pledge is limited to the assets or property subject to such Permitted Lien; or (c) pursuant to Permitted Debt comprising a Permitted Capital Markets Transaction, provided that such Third Party Negative Pledge is no more restrictive than that contained in the October 2000 Indenture."
(l) Article VI shall be further amended by adding the following new sections at the end thereof:
"6.30 TRANSACTIONS WITH AFFILIATES. Avnet shall not, and shall not permit any of its Subsidiaries to, enter into any transaction of any kind with any Affiliate of Avnet (other than any Wholly Owned Consolidated Subsidiary of Avnet), whether or not in the ordinary course of business, other than on fair and reasonable terms substantially as favorable to Avnet or such Subsidiary as would be obtainable by Avnet or such Subsidiary at the time in a comparable arm's length transaction with a Person other than an Affiliate.
6.31 MODIFICATION OF THE 2008 SENIOR NOTE INDENTURE. Avnet shall not enter into any amendment, revision, supplement or modification to the 2008 Senior Note Indenture that in any manner directly or indirectly (a) affects any defined term therefrom used in this Agreement, or (b) materially restricts or impairs any of the Administrative Agent's or Lenders' legal or contractual rights or remedies under this Agreement."
(m) Section 7.01 shall be amended as follows:
(i) In subsection (f), by replacing the dollar amount "$35,000,000" with "$15,000,000";
(ii) By amending and restating subsection (g) in its entirety as follows:
"(g) Any event or condition shall occur which (i) results in the acceleration of the maturity of any Debt or obligation of any Borrower or any Material Subsidiary in excess of $15,000,000 or (ii) enables the Person to whom any Debt or obligation of the Borrower or any Material Subsidiary in excess of $35,000,000 is owed, or any Person acting on such Person's behalf, to accelerate the maturity thereof;"
(iii) In subsection (n), by replacing the dollar amount "$50,000,000" with "$15,000,000".
2. Representations and Warranties. Avnet hereby represents and warrants to the Administrative Agent and the Lenders as follows:
(a) No Default or Event of Default has occurred and is continuing, either immediately prior to or after giving effect to this Amendment.
(b) The execution, delivery and performance by Avnet of this Amendment have been duly authorized by all necessary corporate and other action and do not and will not require any registration with, consent or approval of, notice to or action by, any Person (including any Governmental Authority) in order to be effective and enforceable. The Credit Agreement as amended by this Amendment constitutes the legal, valid and binding obligations of Avnet, enforceable against it in accordance with its respective terms, without defense, counterclaim or offset.
(c) All representations and warranties of Avnet contained in Article V of the Credit Agreement as amended hereby are true and correct as of the Effective Date, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they are true and correct as of such earlier date.
(d) Avnet is entering into this Amendment on the basis of its own investigation and for its own reasons, without reliance upon the Administrative Agent, the Lenders, their respective Affiliates, or any other Person.
(e) As of the Effective Date, there are no Designated Borrowers under the Credit Agreement.
3. Effective Date. This Amendment will become effective as of the date shown first above, provided each of the following conditions precedent has been satisfied (the "Effective Date"):
(a) The Administrative Agent shall have received from each of Avnet and the Required Lenders a duly executed original (or, if elected by the Administrative Agent, an executed facsimile copy) counterpart to this Amendment.
(b) The Administrative Agent shall have received from the secretary or assistant secretary of Avnet a certificate providing satisfactory evidence of the authorization of the execution, delivery and performance by Avnet of this Amendment and any other documents contemplated hereby.
(c) The Administrative Agent shall have received from Avnet a certificate executed by a Responsible Officer of Avnet, dated as of the Effective Date and certifying that (i) all representations and warranties contained herein are true and correct on and as of the Effective Date as though made on and as of such date and (ii) on and as of the Effective Date, no event has occurred which has or would reasonably be likely to have a material adverse effect on the business, assets, liabilities (actual or contingent), operations, condition (financial or otherwise) or prospects of Avnet or of Avnet and its Subsidiaries taken as a whole, or on the facts and information regarding Avnet and its Subsidiaries as represented as of the date hereof.
(d) The Administrative Agent shall have received, in form and substance satisfactory to it, such additional approvals, consents, opinions, documents and other information as the Administrative Agent may request.
(e) The Effective Date shall have occurred no later than February 14, 2003.
For purposes of determining compliance with the conditions specified in this
Section 3, each Lender that has executed this Amendment and delivered it to the
Administrative Agent shall be deemed to have consented to, approved or accepted,
or to be satisfied with, each document or other matter either sent, or made
available for inspection, by the Administrative Agent to such Lender for
consent, approval, acceptance or satisfaction, or required thereunder to be
consented to or approved by or acceptable or satisfactory to such Lender.
4. Reservation of Rights. Avnet acknowledges and agrees that the execution and delivery by the Administrative Agent and the Required Lenders of this Amendment shall not (a)
be deemed to create a course of dealing or otherwise obligate the Administrative Agent or any Lender to execute similar amendments under the same or similar circumstances in the future or (b) be deemed to create any implied waiver of any right or remedy of the Administrative Agent or any Lender with respect to any term or provision of any Loan Document.
5. Miscellaneous.
(a) Except as herein expressly amended, all terms, covenants and provisions of the Credit Agreement are and shall remain in full force and effect and all references therein to such Credit Agreement shall henceforth refer to the Credit Agreement as amended by this Amendment. This Amendment shall be deemed incorporated into, and a part of, the Credit Agreement. The Credit Agreement, as amended hereby, is hereby ratified by Avnet.
(b) This Amendment shall be binding upon and inure to the benefit of the parties hereto and thereto and their respective successors and assigns. No third party beneficiaries are intended in connection with this Amendment.
(c) THIS AMENDMENT IS SUBJECT TO THE PROVISIONS OF SECTIONS 9.19 AND 9.20 OF THE CREDIT AGREEMENT, THE PROVISIONS OF WHICH ARE BY THIS REFERENCE HEREBY INCORPORATED HEREIN IN FULL.
(d) This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. Each of the parties hereto understands and agrees that this document (and any other document required herein) may be delivered by any party thereto either in the form of an executed original or an executed original sent by facsimile transmission to be followed promptly by mailing of a hard copy original, and that receipt by the Administrative Agent of a facsimile transmitted document purportedly bearing the signature of a Lender or Avnet shall bind such Lender or Avnet, respectively, with the same force and effect as the delivery of a hard copy original. Any failure by the Administrative Agent to receive the hard copy executed original of such document shall not diminish the binding effect of receipt of the facsimile transmitted executed original of such document of the party whose hard copy page was not received by the Administrative Agent.
(e) This Amendment, together with the Credit Agreement, contains the entire and exclusive agreement of the parties hereto with reference to the matters discussed herein and therein. This Amendment supersedes all prior drafts and communications with respect thereto. This Amendment may not be amended except in accordance with the provisions of Section 9.01 of the Credit Agreement.
(f) If any term or provision of this Amendment shall be deemed prohibited by or invalid under any applicable law, such provision shall be invalidated without affecting the remaining provisions of this Amendment or the Credit Agreement, respectively.
(g) Avnet covenants to pay to or reimburse the Administrative Agent, upon demand, for all out-of-pocket costs and expenses incurred in connection with the development, preparation, negotiation, execution and delivery of this Amendment and the other documents contemplated hereby.
(h) This Amendment shall constitute a Loan Document.
[Signature pages follow]
IN WITNESS WHEREOF, the parties hereto have executed and delivered this Amendment as of the date first above written.
AVNET, INC.
By: /s/ David R. Birk
---------------------------------------
Name: David R. Birk
Title: Senior Vice President, Secretary and
General Counsel
|
Signature Page for the Seventh Amendment to Credit Agreement
BANK OF AMERICA, N.A., as the
Administrative Agent, A Lender, the L/C
Issuer and the Swing Line Lender
BY: /s/ Sugeet Manchanda
---------------------------------------
Name: Sugeet Manchanda
Title: Principal
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Signature Page for the Seventh Amendment to Credit Agreement
ABN AMRO BANK N.V., as a Lender
By: /s/ MARIA VICKROY-PERALTA
----------------------------------------
Name: MARIA VICKROY-PERALTA
Title: EXECUTIVE DIRECTOR
By: /s/ PETER HSU
----------------------------------------
Name: PETER HSU
Title: VICE PRESIDENT
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Signature Page for the Seventh Amendment to Credit Agreement
THE BANK OF NOVA SCOTIA, as a
Lender
By: /s/ [ILLEGIBLE]
----------------------------------------
Name:_______________________________________
TITLE:______________________________________
|
Signature Page for the Seventh Amendment to Credit Agreement
BANK ONE, N.A., as a Lender
BY: /s/ Daniel E. Casey
--------------------------------
Name: Daniel E. Casey
Title: Director
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Signature Page for the Seventh Amendment to Credit Agreement
CREDIT SUISSE FIRST BOSTON, as a
Lender
By: /s/ Robert Hetu
----------------------------------------
Name: Robert Hetu
Title: Director
BY: /s/ Guy M. Baron
---------------------------------------
Name: Guy M. Baron
Title: Associate
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Signature Page for the Seventh Amendment to Credit Agreement
WACHOVIA BANK, NATIONAL
ASSOCIATION, as a Lender
By: /s/ George L. Woolsey
-----------------------------
Name: George L. Woolsey
Title: Vice President
|
Signature Page for the Seventh Amendment to Credit Agreement
THE NORTHERN TRUST COMPANY,
as a Lender
By: /s/ Eric Dybing
--------------------------
Name: Eric Dybing
Title: Second Vice President
|
Signature Page for the Seventh Amendment to Credit Agreement
STANDARD CHARTERED BANK, as a
Lender
By: /s/ MARY MACHADO SCHAMMEL
--------------------------
Name: MARY MACHADO SCHAMMEL
Title: Sr. Vice President
By: /s/ ROBERT REDDINGTON
--------------------------
Name: ROBERT REDDINGTON
Title: AVP/CREDIT DOCUMENTATION
STANDARD CHARTERED BANK NY
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Signature Page for the Seventh Amendment to Credit Agreement
EXHIBIT 10B
EXECUTION VERSION
EIGHTH AMENDMENT TO CREDIT AGREEMENT
THIS EIGHTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as of March 28, 2003, is entered into by and among AVNET, INC., a New York corporation ("Avnet"), the lenders party to the Credit Agreement referred to below (each a "Lender" and, collectively, the "Lenders") and BANK OF AMERICA, N.A., as administrative agent for itself and the other Lenders (in such capacity, the "Administrative Agent").
RECITALS
A. Avnet, the Lenders and the Administrative Agent are parties to that certain Credit Agreement (Multi-Year) dated as of October 25, 2001, as amended or modified by that First Amendment to Credit Agreement (Multi-Year) dated as of March 29, 2002, that Second Amendment to Credit Agreement (Multi-Year) dated as of October 10, 2002, that certain letter agreement dated as of November 8, 2002, that Third Amendment to Credit Agreement dated as of November 23, 2002, that Fourth Amendment to Credit Agreement dated as of December 9, 2002, that Fifth Amendment to Credit Agreement dated as of December 12, 2002, that Sixth Amendment to Credit Agreement dated as of December 13, 2002, and that Seventh Amendment to Credit Agreement dated as of January 30, 2003 (as so amended or modified, the "Credit Agreement"), pursuant to which the Administrative Agent and the Lenders have extended certain credit facilities to Avnet and certain of its Subsidiaries.
B. Avnet has requested that the Administrative Agent and the Lenders agree to certain amendments of the Credit Agreement.
The Administrative Agent and the Lenders are willing to amend the Credit Agreement subject to the terms and conditions of this Amendment.
NOW, THEREFORE, for valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Defined Terms. Unless otherwise defined herein, capitalized terms used herein shall have the meanings, if any, assigned to such terms in the Credit Agreement as amended hereby.
2. Amendments to Credit Agreement. The Credit Agreement shall be amended, effective as of the Effective Date, as follows:
(a) At Section 1.01, at the defined term "EBITDA", by replacing the dollar amount "$25,000,000" with "$47,700,000".
(b) Section 6.07(m) shall be amended by replacing the dollar amount "$10,000,000" with "$20,000,000".
(c) Section 6.14 shall be amended as follows:
(i) In clause (v) of subsection (h), by replacing the dollar amount "$5,000,000" with "$15,000,000"; and
(ii) In subsection (l), by replacing the dollar amount "$5,000,000" with "$15,000,000".
(d) Section 6.17 shall be amended by adding the following at the end thereof:
";provided, however, that notwithstanding the other provisions of this Section 6.17, Avnet shall be permitted to repay, prepay, cause the redemption or Substantive Defeasement of, or repurchase, and cancel any or all Capital Markets Notes having original stated maturities in year 2004 (collectively, the "2004 Notes Redemption"), provided Avnet delivers to the Administrative Agent on each date on which Avnet becomes obligated to consummate a 2004 Notes Redemption a certificate signed by a Responsible Officer of Avnet certifying that on and as of such date (i) there exists no Default or Event of Default, and (ii) the representations and warranties of Avnet contained in Article V of the Credit Agreement are true and correct, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they are true and correct as of such earlier date."
(e) Section 6.25 shall deleted in its entirety and
replaced with the following:
"6.25 SEI INVESTMENT. Avnet shall, as and when required under the terms of the guarantee provision (the "SEI Guaranty Provision") in that Share Purchase Agreement dated as of August 25, 1999 between Avnet and SEI Investments B.V., pay or deliver any amount required to be paid or delivered pursuant to the SEI Guaranty Provision (collectively, the "SEI Payments") and such SEI Payments shall be (a) in the form of common stock of Avnet issued for such purposes (and not acquired by Avnet pursuant to any secondary market purchase or stock redemption program), or (b) in the form of cash, provided that in the event of any such cash payment, Avnet shall deliver to the Administrative Agent on the date such SEI Payment is made a certificate signed by a Responsible Officer of Avnet certifying that on and as of such date (the "SEI Payment Date"):
(i) there exists no Default or Event of Default;
(ii) on a pro forma basis, based upon (A) the most recent quarterly or annual financial statements delivered by Avnet under Section 6.01(a) or (b) or (B) if the SEI Payment Date falls between the end of a financial quarter and the date on which Avnet delivers financial statements pursuant to Section 6.01(a) or (b) in respect of such quarter, preliminary financial statements prepared by Avnet in accordance with GAAP and fairly presenting the financial condition of Avnet and its consolidated Subsidiaries as of the date thereof and their results of operations for the period covered thereby, subject to the absence of footnotes and to ordinary quarter-end adjustments, and in either event (A) and (B), modified to take into account the effect of such SEI Payment as if such SEI Payment had
occurred on the last day of such quarter, no breach of Section 6.11(b) or (c) would occur as a result of such SEI Payment, and attaching a properly completed pro forma Compliance Certificate to the same effect; and
(iii) the representations and warranties of Avnet contained in Article V of the Credit Agreement are true and correct, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they are true and correct as of such earlier date."
3. Representations and Warranties. Avnet hereby represents and warrants to the Administrative Agent and the Lenders as follows:
(a) No Default or Event of Default has occurred and is continuing, either immediately prior to or after giving effect to this Amendment.
(b) The execution, delivery and performance by Avnet of this Amendment have been duly authorized by all necessary corporate and other action and do not and will not require any registration with, consent or approval of, notice to or action by, any Person (including any Governmental Authority) in order to be effective and enforceable. The Credit Agreement as amended by this Amendment constitutes the legal, valid and binding obligations of Avnet, enforceable against it in accordance with its respective terms, without defense, counterclaim or offset.
(c) All representations and warranties of Avnet contained in Article V of the Credit Agreement as amended hereby are true and correct as of the Effective Date, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they are true and correct as of such earlier date.
(d) Avnet is entering into this Amendment on the basis of its own investigation and for its own reasons, without reliance upon the Administrative Agent, the Lenders or any other Person.
(e) As of the Effective Date, there are no Designated Borrowers under the Credit Agreement.
(f) The information set forth on Schedule 1 attached hereto in respect of Avnet do Brasil LTDA ("Avnet Brasil") and Soluciones Mercantiles, S. de R.L. de C.V. (Mexico) ("Soluciones") is true and correct in all material respects to the best of Avnet's knowledge.
4. Effective Date. This Amendment will become effective as of the date shown first above, provided each of the following conditions precedent has been satisfied (the "Effective Date"):
(a) The Administrative Agent shall have received from each of Avnet and the Required Lenders a duly executed original (or, if elected by the Administrative Agent, an executed facsimile copy) counterpart to this Amendment.
(b) The Administrative Agent shall have received from the secretary or assistant secretary of Avnet a certificate providing satisfactory evidence of the authorization of the execution, delivery and performance by Avnet of this Amendment and any other documents contemplated hereby.
(c) The Administrative Agent shall have received from Avnet a certificate executed by a Responsible Officer of Avnet, dated as of the Effective Date and certifying that (i) all representations and warranties contained herein are true and correct on and as of the Effective Date as though made on and as of such date and (ii) on and as of the Effective Date, no event has occurred which has or would reasonably be likely to have a material adverse effect on the business, assets, liabilities (actual or contingent), operations, condition (financial or otherwise) or prospects of Avnet or of Avnet and its Subsidiaries taken as a whole.
(d) The Administrative Agent shall have received satisfactory evidence that Avnet has paid (i) all Attorney Costs of the Administrative Agent, and (ii) all other reasonable out-of-pocket costs and expenses of the Administrative Agent in connection with the negotiation, preparation, execution and delivery of this Amendment and any other documents to be delivered in connection herewith, in each case to the extent invoiced prior to the Effective Date (including any previously invoiced and outstanding Attorney Costs that relate to services previously provided).
(e) The Administrative Agent shall have received, in form and substance satisfactory to it, such additional approvals, consents, opinions, documents and other information as the Administrative Agent may request.
(f) The Administrative Agent shall have received, in form and substance satisfactory to it, an irrevocable notice pursuant to Section 2.06(a) of the Credit Agreement from Avnet (such notice, the "Reduction Notice"), which Reduction Notice shall specify the reduction of the Aggregate Commitments to $350,000,000, such reduction to occur as of the Effective Date.
(g) The Effective Date shall have occurred no later than March 28, 2003.
For purposes of determining compliance with the conditions specified in this
Section 4,each Lender that has executed this Amendment and delivered it to the
Administrative Agent shall be deemed to have consented to, approved or accepted,
or to be satisfied with, each document or other matter either sent, or made
available for inspection, by the Administrative Agent to such Lender for
consent, approval, acceptance or satisfaction, or required thereunder to be
consented to or approved by or acceptable or satisfactory to such Lender.
5. Reservation of Rights. Avnet acknowledges and agrees that the execution and delivery by the Administrative Agent and the Required Lenders of this Amendment shall not (a) be deemed to create a course of dealing or otherwise obligate the Administrative Agent or any Lender to execute similar amendments under the same or similar circumstances in the future or (b) be deemed to create any implied waiver of any right or remedy of the Administrative Agent or any Lender with respect to any term or provision of any Loan Document.
6. Miscellaneous.
(a) Except as herein expressly amended, all terms, covenants and provisions of the Credit Agreement are and shall remain in full force and effect and all references therein to such Credit Agreement shall henceforth refer to the Credit Agreement as amended by this Amendment. This Amendment shall be deemed incorporated into, and a part of, the Credit Agreement. The Credit Agreement, as amended hereby, is hereby ratified by Avnet.
(b) This Amendment shall be binding upon and inure to the benefit of the parties hereto and thereto and their respective successors and assigns. No third party beneficiaries are intended in connection with this Amendment.
(c) THIS AMENDMENT IS SUBJECT TO THE PROVISIONS OF SECTIONS 9.19 AND 9.20 OF THE CREDIT AGREEMENT, THE PROVISIONS OF WHICH ARE BY THIS REFERENCE HEREBY INCORPORATED HEREIN IN FULL.
(d) This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. Each of the parties hereto understands and agrees that this document (and any other document required herein) may be delivered by any party thereto either in the form of an executed original or an executed original sent by facsimile transmission to be followed promptly by mailing of a hard copy original, and that receipt by the Administrative Agent of a facsimile transmitted document purportedly bearing the signature of A Lender or Avnet shall bind such Lender or Avnet, respectively, with the same force and effect as the delivery of a hard copy original. Any failure by the Administrative Agent to receive the hard copy executed original of such document shall not diminish the binding effect of receipt of the facsimile transmitted executed original of such document of the party whose hard copy page was not received by the Administrative Agent.
(e) This Amendment, together with the Credit Agreement, contains the entire and exclusive agreement of the parties hereto with reference to the matters discussed herein and therein. This Amendment supersedes all prior drafts and communications with respect thereto. This Amendment may not be amended except in accordance with the provisions of Section 9.01 of the Credit Agreement.
(f) If any term or provision of this Amendment shall be deemed prohibited by or invalid under any applicable law, such provision shall be invalidated without affecting the remaining provisions of this Amendment or the Credit Agreement, respectively.
(g) Avnet covenants to pay to or reimburse the Administrative Agent, upon demand, for all out-of-pocket costs and expenses incurred in connection with the development, preparation, negotiation, execution and delivery of this Amendment and the other documents contemplated hereby.
(h) This Amendment shall constitute a Loan Document.
(i) The Lenders hereby acknowledge that the Administrative Agent shall not be required to request foreign law Collateral Documents relating to pledges of shares or other interests (collectively, the "Specified Collateral Documents") of Avnet Brasil and Soluciones (collectively, the "Specified Subsidiaries"), and the Administrative Agent hereby agrees that Avnet shall not be required to deliver the Specified Collateral Documents regarding the Specified Subsidiaries; provided, however, that upon the occurrence of a Default or Event of Default, the Administrative Agent shall, at the request of the Required Lenders, require Avnet to deliver the Specified Collateral Documents regarding the Specified Subsidiaries and Avnet shall deliver the Specified Collateral Documents in accordance with the terms and conditions set forth in the Collateral Documents.
(j) The Lenders hereby consent (i) to the Administrative Agent returning to Avnet a stock certificate (the "eConnections Certificate") evidencing 3,867,366 shares of Series B Convertible Preferred Stock of eConnections, Inc. ("eConnections") and to Avnet tendering such eConnections Certificate to eConnections in connection with a liquidation plan by eConnections for a consideration of approximately$0.2315 per share (the "eConnections Transaction"), and (ii) to Avnet selling 132,000 shares of common stock of Clear Technologies, Inc. through its Subsidiary Savoir Technology Group, Inc. pursuant to an existing contractual obligation for a consideration of $1,500,000 or more, payable over five years following the sale of such shares (the "Clear Technologies Transaction"; and together with the eConnections Transaction, collectively, the "Permitted Dispositions") and (iii) to the Administrative Agent releasing all Lender Liens thereon; provided that (i) the Permitted Dispositions shall be substantially consummated no later than May 31, 2003, (ii) no Default or Event of Default shall exist on the date of the release of the Lender Liens in respect of the Permitted Dispositions, and (iii) no material change of the Permitted Dispositions shall have occurred without the prior written consent of the Required Lenders.
(k) Solely for the purpose of the Reduction Notice, the Lenders hereby waive the notice requirement in connection with a reduction of the Aggregate Commitments by Avnet set forth in clause (i) of Section 2.06(a) of the Credit Agreement.
[Signature pages follow]
IN WITNESS WHEREOF, the parties hereto have executed and delivered this Amendment as of the date first above written.
AVNET, INC.
By: /s/ Raymond Sadowski
-----------------------------
Name: Raymond Sadowski
Title: Senior Vice President And
Chief Financial Officer
|
Signature Page for the Eighth Amendment to Credit Agreement
BANK OF AMERICA, N.A., as the
Administrative Agent, a Lender, the L/C
Issuer and the Swing Line Lender
By: /s/ Sugeet Manchanda -------------------------- Name: Sugeet Manchanda Title: Principal |
Signature Page for the Eighth Amendment to Credit Agreement
ABN AMRO BANK N.V., as a Lender
By: /s/ Bassam Wehbe ------------------------------ Name: BASSAM WEHBE Title: SENIOR VICE PRESIDENT By: /s/ PETER HSU ------------------------------ Name: PETER HSU Title: VICE PRESIDENT |
Signature Page for the Eighth Amendment to Credit Agreement
THE BANK OF NOVA SCOTIA, as a
Lender
By:____________________________
Name:__________________________
Title:_________________________
Signature Page for the Eighth Amendment to Credit Agreement
BANK OF TOKYO-MITSUBISHI
TRUST COMPANY, as a Lender
By:____________________________
Name:__________________________
Title:_________________________
Signature Page for the Eighth Amendment to Credit Agreement
BANK ONE, N.A., as a Lender
By: /s/ Daniel E. Casey
---------------------------
Name: Daniel E. Casey
Title: Director
|
Signature Page for the Eighth Amendment to Credit Agreement
CREDIT SUISSE FIRST BOSTON, as a
Lender
By: /s/ Christopher Lally
---------------------------
Name: CHRISTOPHER LALLY
Title: VICE PRESIDENT
By: /s/ Guy M. Baron
----------------------------
Name: GUY M. BARON
Title: ASSOCIATE
|
Signature Page for the Eighth Amendment to Credit Agreement
WACHOVIA BANK,NATIONAL
ASSOCIATION, as a Lender
By: ____________________________
Name: __________________________
Title: _________________________
Signature Page for the Eighth Amendment to Credit Agreement
FLEET NATIONAL BANK, as a Lender
By: /s/ Steven J. Melicharel ----------------------------- Name: STEVEN J. MELICHAREL Title: SVP |
Signature Page for the Eighth Amendment to Credit Agreement
KBC BANK, N.V., as a Lender
By: ____________________________
Name: __________________________
Title: _________________________
By: ____________________________
Name:__________________________
Title:_________________________
Signature Page for the Eighth Amendment to Credit Agreement
NATEXIS BANQUES POPULAIRES,
as a Lender
By: ____________________________
Name: __________________________
Title: _________________________
By: ____________________________
Name: __________________________
Title: _________________________
Signature Page for the Eighth Amendment to Credit Agreement
THE NORTHERN TRUST COMPANY, as a Lender
By: /s/ Eric Dybing ---------------------------- Name: Eric Dybing Title: Second Vice President |
Signature Page for the Eighth Amendment to Credit Agreement
SKANDINAVISKA ENSKILDA
BANKEN AB (PUBL), as a Lender
By:____________________________
Name:__________________________
Title:_________________________
Signature Page for the Eighth Amendment to Credit Agreement
STANDARD CHARTERED BANK, as
a Lender
By: /s/ Mary Machado Schammel
----------------------------
Name: MARY MACHADO SCHAMMEL
Title: Sr. Vice President
By: /s/ Robert Reddington
----------------------------
Name: ROBERT REDDINGTON
Title: AVP/CREDIT DOCUMENTATION
STANDARD CHARTERED BANK NY
|
Signature Page for the Eighth Amendment to Credit Agreement
UNICREDITO ITALIANO, NEW YORK
BRANCH, as a Lender
By:____________________________
Name:__________________________
Title:_________________________
By:____________________________
Name:__________________________
Title:_________________________
Signature Page for the Eighth Amendment to Credit Agreement
EXHIBIT 99.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
(AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)
Pursuant to 18 U.S.C. Section 1350, the undersigned Chief Executive Officer of Avnet, Inc. (the "Company") hereby certifies that the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 28, 2003 (the "Report") fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: May 9, 2003 /s/ Roy Vallee ----------------------- Roy Vallee Chief Executive Officer |
The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document.
EXHIBIT 99.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
(AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)
Pursuant to 18 U.S.C. Section 1350, the undersigned Chief Financial Officer of Avnet, Inc. (the "Company") hereby certifies that the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 28, 2003 (the "Report") fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: May 9, 2003 /s/ Raymond Sadowski ----------------------- Raymond Sadowski Chief Financial Officer |
The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document.