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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended October 2, 2021

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

For the transition period from _____ to _____

Commission File #1-4224

AVNET, INC.

(Exact name of registrant as specified in its charter)

New York

 

 

11-1890605

(State or other jurisdiction

 

 

(IRS Employer

of incorporation or organization)

 

 

Identification No.)

2211 South 47th Street, Phoenix, Arizona

 

85034

(Address of principal executive offices)

 

(Zip Code)

(480) 643-2000

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

N/A

(Former name, former address and former fiscal year, if changed since last report.)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

 

Trading Symbol

 

Name of Each Exchange on Which registered:

Common stock, par value $1.00 per share

 

AVT

 

Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes þ No

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

Large Accelerated Filer

  

Accelerated Filer

  

Non-accelerated Filer

Smaller Reporting Company

Emerging Growth Company

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

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

As of October 21, 2021, the total number of shares outstanding of the registrant’s Common Stock was 99,222,109 shares, net of treasury shares.

Table of Contents

AVNET, INC. AND SUBSIDIARIES

INDEX

Page No.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Consolidated Balance Sheets at October 2, 2021 and July 3, 2021

2

Consolidated Statements of Operations for the first quarters ended October 2, 2021 and October 3, 2020

3

Consolidated Statements of Comprehensive Income for the first quarters ended October 2, 2021 and October 3, 2020

4

Consolidated Statements of Shareholders’ Equity for the first quarters ended October 2, 2021 and October 3, 2020

5

Consolidated Statements of Cash Flows for the first quarters ended October 2, 2021 and October 3, 2020

6

Notes to Consolidated Financial Statements

7

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

18

Item 3. Quantitative and Qualitative Disclosures About Market Risk

25

Item 4. Controls and Procedures

26

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

26

Item 1A. Risk Factors

26

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

27

Item 6. Exhibits

28

Signature Page

29

1

Table of Contents

PART I

FINANCIAL INFORMATION

Item 1.

Financial Statements

AVNET, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

    

October 2,

    

July 3,

 

2021

2021

 

(Thousands, except share

 

amounts)

 

ASSETS

Current assets:

Cash and cash equivalents

$

299,101

$

199,691

Receivables

 

3,720,296

 

3,576,130

Inventories

 

3,283,825

 

3,236,837

Prepaid and other current assets

 

161,845

 

150,763

Total current assets

 

7,465,067

 

7,163,421

Property, plant and equipment, net

 

351,873

 

368,452

Goodwill

 

823,953

 

838,105

Intangible assets, net

 

23,074

 

28,539

Operating lease assets

257,614

265,988

Other assets

 

289,728

 

260,917

Total assets

$

9,211,309

$

8,925,422

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Short-term debt

$

$

23,078

Accounts payable

 

2,467,743

 

2,401,357

Accrued expenses and other

588,340

572,457

Short-term operating lease liabilities

 

57,256

 

58,346

Total current liabilities

 

3,113,339

 

3,055,238

Long-term debt

 

1,389,689

 

1,191,329

Long-term operating lease liabilities

230,350

239,838

Other liabilities

 

332,332

 

354,833

Total liabilities

 

5,065,710

 

4,841,238

Commitments and contingencies (Note 7)

Shareholders’ equity:

Common stock $1.00 par; authorized 300,000,000 shares; issued 99,336,434 shares and 99,601,393 shares, respectively

 

99,336

 

99,601

Additional paid-in capital

 

1,631,667

 

1,622,160

Retained earnings

 

2,593,367

 

2,516,170

Accumulated other comprehensive loss

 

(178,771)

 

(153,747)

Total shareholders’ equity

 

4,145,599

 

4,084,184

Total liabilities and shareholders’ equity

$

9,211,309

$

8,925,422

See notes to consolidated financial statements.

2

Table of Contents

AVNET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

First Quarters Ended

    

October 2,

    

October 3,

2021

2020

(Thousands, except per share amounts)

Sales

$

5,584,695

$

4,723,059

Cost of sales

 

4,925,002

 

4,206,979

Gross profit

 

659,693

 

516,080

Selling, general and administrative expenses

 

486,178

 

471,158

Restructuring, integration and other expenses

 

5,272

 

26,420

Operating income

 

168,243

 

18,502

Other expense, net

 

(409)

 

(19,498)

Interest and other financing expenses, net

 

(22,844)

 

(22,301)

Income (loss) before taxes

 

144,990

 

(23,297)

Income tax expense (benefit)

 

33,672

 

(4,408)

Net income (loss)

$

111,318

$

(18,889)

Earnings (loss) per share:

Basic

$

1.12

$

(0.19)

Diluted

$

1.10

$

(0.19)

Shares used to compute earnings per share:

Basic

 

99,647

 

98,897

Diluted

 

101,116

 

98,897

Cash dividends paid per common share

$

0.24

$

0.21

See notes to consolidated financial statements.

3

Table of Contents

AVNET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

First Quarters Ended

    

October 2,

    

October 3,

2021

2020

(Thousands)

Net income (loss)

$

111,318

$

(18,889)

Other comprehensive income (loss), net of tax:

Foreign currency translation and other

 

(29,036)

 

90,373

Pension adjustments, net

 

4,012

 

9,623

Total comprehensive income

$

86,294

$

81,107

See notes to consolidated financial statements.

4

Table of Contents

AVNET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)

    

    

    

    

    

Accumulated

    

Common

Common

Additional

Other

Total

Stock-

Stock-

Paid-In

Retained

Comprehensive

Shareholders’

Shares

Amount

Capital

Earnings

(Loss) Income

Equity

(Thousands)

Balance, July 3, 2021

 

99,601

$

99,601

$

1,622,160

$

2,516,170

$

(153,747)

$

4,084,184

Net income

 

 

 

 

111,318

 

 

111,318

Translation adjustments and other

 

 

 

 

 

(29,036)

 

(29,036)

Pension liability adjustments, net

4,012

4,012

Cash dividends

 

 

 

 

(23,893)

 

 

(23,893)

Repurchases of common stock

 

(275)

 

(275)

 

(10,228)

 

(10,503)

Stock-based compensation

 

10

10

9,507

9,517

Balance, October 2, 2021

 

99,336

$

99,336

$

1,631,667

$

2,593,367

$

(178,771)

$

4,145,599

    

    

    

    

    

Accumulated

    

Common

Common

Additional

Other

Total

Stock-

Stock-

Paid-In

Retained

Comprehensive

Shareholders’

Shares

Amount

Capital

Earnings

(Loss) Income

Equity

(Thousands)

Balance, June 27, 2020

 

98,793

$

98,793

$

1,594,140

$

2,421,845

$

(388,380)

$

3,726,398

Net loss

 

 

 

 

(18,889)

 

 

(18,889)

Translation adjustments and other

 

 

 

 

 

90,373

 

90,373

Pension liability adjustments, net

9,623

9,623

Cash dividends

 

 

 

 

(20,756)

 

 

(20,756)

Effects of new accounting principles, net

 

 

 

(14,480)

 

 

(14,480)

Stock-based compensation

 

51

51

5,191

 

 

 

5,242

Balance, October 3, 2020

 

98,844

$

98,844

$

1,599,331

$

2,367,720

$

(288,384)

$

3,777,511

See notes to consolidated financial statements.

5

Table of Contents

AVNET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

First Quarters Ended

    

October 2,

    

October 3,

2021

2020

(Thousands)

Cash flows from operating activities:

Net income (loss)

$

111,318

$

(18,889)

Non-cash and other reconciling items:

Depreciation

 

21,833

 

21,845

Amortization

 

5,210

 

20,117

Amortization of operating lease assets

13,751

14,079

Deferred income taxes

 

(3,259)

 

6,614

Stock-based compensation

 

9,178

 

4,961

Impairments

 

 

15,166

Other, net

 

2,603

 

10,898

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

Receivables

 

(169,992)

 

(7,116)

Inventories

 

(73,971)

 

(136,426)

Accounts payable

 

85,217

 

228,740

Accrued expenses and other, net

 

(32,856)

 

(37,545)

Net cash flows (used) provided by operating activities

 

(30,968)

 

122,444

Cash flows from financing activities:

Borrowings under accounts receivable securitization, net

 

59,300

 

166,900

Borrowings (repayments) under senior unsecured credit facility, net

118,716

 

(234,190)

Borrowings (repayments) under bank credit facilities and other debt, net

 

(734)

 

(545)

Repurchases of common stock

 

(9,566)

 

Dividends paid on common stock

 

(23,893)

 

(20,756)

Other, net

 

(1,337)

 

281

Net cash flows provided (used) by financing activities

 

142,486

 

(88,310)

Cash flows from investing activities:

Purchases of property, plant and equipment

 

(12,025)

 

(19,998)

Acquisitions of assets and businesses

 

 

(18,700)

Other, net

 

318

 

753

Net cash flows used for investing activities

 

(11,707)

 

(37,945)

Effect of currency exchange rate changes on cash and cash equivalents

 

(401)

 

9,829

Cash and cash equivalents:

— increase

99,410

6,018

— at beginning of period

199,691

477,038

— at end of period

$

299,101

$

483,056

See notes to consolidated financial statements.

6

Table of Contents

AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. Basis of presentation and new accounting pronouncements

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

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

Interim results of operations do not necessarily indicate the results to be expected for the full fiscal year. The information included in this Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended July 3, 2021.

Fiscal year

The Company operates on a “52/53 week” fiscal year, and fiscal 2022 contains 52 weeks compared to fiscal 2021, which contained 53 weeks. As a result, the first quarter of fiscal 2022, contained 13 weeks compared to the first quarter of fiscal 2021, which contained 14 weeks.

Recently adopted accounting pronouncements

In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes (Topic 740) (“ASU No. 2019-12”), which simplifies the income tax accounting, eliminates certain exceptions within ASC Topic 740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistency among reporting entities. Most amendments within ASU No. 2019-12 are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. The Company’s adoption of ASU No. 2019-12 beginning the first quarter of fiscal 2022 did not have a material impact on the Company’s Consolidated Financial Statements.

Recently issued accounting pronouncements

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU No. 2020-04”), which provides optional guidance to ease the potential burden in accounting for reference rate reform on financial reporting. The new guidance provides optional expedients and exceptions for applying GAAP to transactions affected by reference rate reform if certain criteria are met. In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope (“ASU No. 2021-01”), to clarify certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting to apply to derivatives that are affected by the discounting transition. Both ASU No. 2020-04 and ASU No. 2021-01 are effective upon issuance through December 31, 2022. The Company is currently evaluating the effects of adopting the provisions of ASU No. 2020-04 and ASU No. 2021-01, but does not currently expect a material impact on the Company’s Consolidated Financial Statements.

7

Table of Contents

AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

2. Receivables

The Company’s receivables and allowance for credit losses were as follows:

October 2,

July 3,

2021

2021

(Thousands)

Receivables

$

3,808,214

$

3,664,290

Allowance for Credit Losses

(87,918)

(88,160)

The Company had the following activity in the allowance for credit losses during the first quarters of fiscal 2022 and 2021:

October 2,

October 3,

2021

2020

(Thousands)

Balance at beginning of the period

$

88,160

$

65,018

Effect of adopting credit loss accounting standard

17,205

Credit Loss Provisions

4,174

1,786

Credit Loss Recoveries

(276)

(126)

Receivables Write offs

(3,193)

(4,023)

Foreign Currency Effect and Other

(947)

1,667

Balance at end of the period

$

87,918

$

81,527

3. Goodwill and intangible assets

Goodwill

The following table presents the change in goodwill by reportable segment for the three months ended October 2, 2021.

  

Electronic

  

  

Components

Farnell

Total

(Thousands)

Carrying value at July 3, 2021 (1)

$

310,582

$

527,523

$

838,105

Foreign currency translation

 

(3,489)

 

(10,663)

 

(14,152)

Carrying value at October 2, 2021 (1)

$

307,093

$

516,860

$

823,953

(1)Includes accumulated impairments of $1,482,677 from prior fiscal years.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Intangible Assets

The following table presents the Company’s acquired intangible assets at October 2, 2021 and July 3, 2021, respectively.

October 2, 2021

July 3, 2021

 

Acquired

Accumulated

Net Book

 Acquired 

 Accumulated 

 Net Book 

 

    

Amount

    

Amortization

    

Value

    

Amount(1)

    

Amortization

    

Value

 

(Thousands)

 

Customer related

$

318,429

$

(307,121)

$

11,308

$

324,416

$

(312,392)

$

12,024

Trade name

 

56,024

 

(46,340)

 

9,684

 

57,184

 

(45,019)

 

12,165

Technology and other

 

56,697

 

(54,615)

 

2,082

 

57,809

 

(53,459)

 

4,350

$

431,150

$

(408,076)

$

23,074

$

439,409

$

(410,870)

$

28,539

(1)Acquired amount reduced by impairment of $17,473 from prior fiscal years.

Intangible asset amortization expense was $5.2 million and $20.1 million for the first quarters of fiscal 2022 and 2021, respectively.

The following table presents the estimated future amortization expense for the remainder of fiscal 2022 and the next five fiscal years (in thousands):

Fiscal Year

    

Remainder of fiscal 2022

$

10,037

2023

6,534

2024

 

3,191

2025

 

1,472

2026

 

1,472

2027

 

368

Total

$

23,074

4. Debt

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

October 2,

July 3,

October 2,

July 3,

2021

   

2021

   

2021

   

2021

Interest Rate

Carrying Balance

 

Bank credit facilities and other

1.24

%

$

$

23,078

Short-term debt

$

$

23,078

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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

October 2,

July 3,

October 2,

July 3,

2021

    

2021

  

2021

  

2021

Interest Rate

Carrying Balance

 

Revolving credit facilities:

Accounts receivable securitization program

0.83

%

$

82,200

$

Credit Facility (due June 2023)

1.18

%

115,891

Public notes due:

December 2022

4.88

%

4.88

%

 

350,000

 

350,000

April 2026

4.63

%

4.63

%

550,000

550,000

May 2031

3.00

%

3.00

%

300,000

300,000

Other long-term debt

1.40

%

1.22

%

 

792

 

1,185

Long-term debt before discount and debt issuance costs

 

1,398,883

 

1,201,185

Discount and debt issuance costs – unamortized

 

(9,194)

 

(9,856)

Long-term debt

$

1,389,689

$

1,191,329

In August 2021, the Company amended and extended for two years its trade accounts receivable securitization program (the “Securitization Program”) in the United States with a group of financial institutions. The Securitization Program allows the Company to transfer, on an ongoing revolving basis, an undivided interest in a designated pool of trade accounts receivable, to provide security or collateral for borrowings up to a maximum of $450 million. The Securitization Program does not qualify for off balance sheet accounting treatment and any borrowings under the Securitization Program are recorded as debt in the consolidated balance sheets. Under the Securitization Program, the Company legally sells and isolates certain U.S. trade accounts receivable into a wholly owned and consolidated bankruptcy remote special purpose entity. Such receivables, which are recorded within “Receivables” in the consolidated balance sheets, totaled $772.1 million and $717.4 million at October 2, 2021, and July 3, 2021, respectively. The Securitization Program contains certain covenants relating to the quality of the receivables sold. Interest on borrowings is calculated using a one-month LIBOR rate plus a spread of 0.75%. The facility fee on the unused balance of the facility is up to 0.35%.

The Company has a five-year $1.25 billion revolving credit facility (the “Credit Facility”) with a syndicate of banks, which expires in June 2023. It consists of revolving credit facilities and the issuance of up to $200.0 million of letters of credit and up to $300.0 million of loans in certain approved currencies, which expires in June 2023. Subject to certain conditions, the Credit Facility may be increased up to $1.50 billion. Under the Credit Facility, the Company may select from various interest rate options, currencies, and maturities. The Credit Facility contains certain covenants including various limitations on debt incurrence, share repurchases, dividends, investments, and capital expenditures. The Credit Facility also includes financial covenants requiring the Company to maintain minimum interest coverage and leverage ratios, which the Company was in compliance with as of October 2, 2021, and July 3, 2021.

As of October 2, 2021, and July 3, 2021, there were $1.2 million and $1.3 million, respectively, in letters of credit issued under the Credit Facility.

As of October 2, 2021, the carrying value and fair value of the Company’s total debt was $1.39 billion and $1.47 billion, respectively. At July 3, 2021, the carrying value and fair value of the Company’s total debt was $1.21 billion and $1.30 billion, respectively. Fair value for the public notes was estimated based upon quoted market prices and, for other forms of debt, fair value approximates carrying value due to the market based variable nature of the interest rates on those debt facilities.

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AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

5. Leases

Substantially all the Company’s leases are classified as operating leases and are predominately related to real property for distribution centers, office space, and integration facilities with a lease term of up to 17 years. The Company’s equipment leases are primarily for automobiles and equipment and are not material to the consolidated financial statements.

The components of lease cost related to the Company’s operating leases were as follows (in thousands):

First Quarters Ended

October 2,

October 3,

2021

  

2020

Operating lease cost

$

17,847

$

18,402

Variable lease cost

6,118

6,288

Total lease cost

$

23,965

$

24,690

Future minimum operating lease payments as of October 2, 2021, are as follows (in thousands):

Fiscal Year

Remainder of fiscal 2022

$

50,480

2023

 

58,378

2024

 

41,960

2025

 

33,060

2026

 

28,426

Thereafter

 

133,533

Total future operating lease payments

345,837

Total imputed interest on operating lease liabilities

(58,231)

Total operating lease liabilities

$

287,606

Other information pertaining to operating leases consists of the following:

First Quarters Ended

October 2,

October 3,

2021

  

2020

Operating Lease Term and Discount Rate

Weighted-average remaining lease term in years

9.0

9.3

Weighted-average discount rate

3.8

%

3.8

%

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AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Supplemental cash flow information related to the Company’s operating leases was as follows (in thousands):

First Quarters Ended

October 2,

October 3,

2021

  

2020

Supplemental Cash Flow Information:

Cash paid for operating lease liabilities

$

14,826

$

14,710

Operating lease assets obtained from new operating lease liabilities

7,578

21,718

6. Derivative financial instruments

Many of the Company’s subsidiaries purchase and sell products in currencies other than their functional currencies, which subjects the Company to the risks associated with fluctuations in currency exchange rates. The Company uses economic hedges to reduce this risk utilizing natural hedging (i.e., offsetting receivables and payables in the same foreign currency) and creating offsetting positions through the use of derivative financial instruments (primarily forward foreign exchange contracts typically with maturities of less than 60 days, but no longer than one year). The Company continues to have exposure to foreign currency risks to the extent they are not economically hedged. The Company adjusts any economic hedges to fair value through the consolidated statements of operations primarily within “Other expense, net.” The fair value of forward foreign exchange contracts, which are based upon Level 2 criteria under the ASC 820 fair value hierarchy, are classified in the captions “Prepaid and other current assets” or “Accrued expenses and other,” as applicable, in the accompanying consolidated balance sheets as of October 2, 2021, and July 3, 2021. The Company’s master netting and other similar arrangements with various financial institutions related to derivative financial instruments allow for the right of offset. The Company’s policy is to present derivative financial instruments with the same counterparty as either a net asset or liability when the right of offset exists.

The Company generally does not hedge its investments in its foreign operations. The Company does not enter derivative financial instruments for trading or speculative purposes and monitors the financial stability and credit standing of its counterparties.

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

The fair values of forward foreign currency exchange contracts not receiving hedge accounting treatment recorded in the Company’s consolidated balance sheets are as follows:

October 2,

    

July 3,

 

2021

2021

(Thousands)

Prepaid and other current assets

$

6,835

$

15,722

Accrued expenses and other

13,557

23,994

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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

First Quarters Ended

October 2,

    

October 3,

 

2021

2020

(Thousands)

Net derivative financial instrument loss

$

(8,771)

$

(7,816)

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

7. Commitments and contingencies

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

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

As of October 2, 2021, and July 3, 2021, the Company had aggregate estimated liabilities of $14.7 million classified within accrued expenses and other for such compliance-related matters that were reasonably estimable as of such dates.

During the first quarter of fiscal 2021, the Company recorded a gain on legal settlement of $8.2 million, which is classified as a component of Restructuring, integration and other expenses.

8. Income taxes

The Company’s effective tax rate on its income before taxes was 23.2% in the first quarter of fiscal 2022. During the first quarter of fiscal 2022, the Company’s effective tax rate was unfavorably impacted primarily by increases to valuation allowances.

During the first quarter of fiscal 2021, the Company’s effective tax rate on its loss before taxes was a benefit of 18.9%. During the first quarter of fiscal 2021, the Company’s effective tax rate was unfavorably impacted primarily by increases to valuation allowances, partially offset by (i) the release of unrecognized tax benefit reserves and (ii) the mix of income in lower tax jurisdictions.

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AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

9. Pension plan

The Company has a noncontributory defined benefit pension plan that covers substantially all current or former U.S. employees (the “Plan”). Components of net periodic pension cost for the Plan was as follows:

First Quarters Ended

  

October 2,

    

October 3,

2021

   

2020

(Thousands)

Service cost

$

3,752

$

3,938

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

3,752

3,938

Interest cost

 

3,947

 

3,976

Expected return on plan assets

 

(12,284)

 

(12,420)

Amortization of prior service cost

 

1

 

75

Recognized net actuarial loss

 

4,086

 

5,151

Total net periodic pension benefit within other expense, net

(4,250)

(3,218)

Net periodic pension (benefit) cost

$

(498)

$

720

The Company made $8.0 million of contributions during the first quarter of fiscal 2022 and expects to make additional contributions to the Plan of up to $8.0 million in the remainder of fiscal 2022.

10. Shareholders’ equity

Share repurchase program

In August 2019, the Company’s Board of Directors amended the Company’s existing share repurchase program, increasing the cumulative total of authorized share repurchases to $2.95 billion of common stock in the open market or through privately negotiated transactions. The timing and actual number of shares repurchased will depend on a variety of factors such as share price, expected liquidity, expected compliance with financial debt convents, corporate and regulatory requirements, and prevailing market conditions. During the first quarter ended October 2, 2021, the Company repurchased 0.3 million shares under this program for a total cost of $10.5 million. As of October 2, 2021, the Company had $458.5 million remaining under its share repurchase authorization.

Common stock dividend

In August 2021, the Company’s Board of Directors approved a dividend of $0.24 per common share and dividend payments of $23.9 million were made in September 2021.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

11. Earnings per share

First Quarters Ended

 

October 2,

October 3,

2021

  

2020

(Thousands, except per share data)

Numerator:

   

Net income (loss)

$

111,318

$

(18,889)

Denominator:

Weighted average common shares for basic earnings per share

 

99,647

 

98,897

Net effect of dilutive stock-based compensation awards

 

1,469

 

Weighted average common shares for diluted earnings per share

 

101,116

 

98,897

Basic earnings (loss) per share

$

1.12

$

(0.19)

Diluted earnings (loss) per share

$

1.10

$

(0.19)

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

897

875

For the first quarter of fiscal 2021, the diluted net loss per share is the same as basic net loss per share as the effect of all potential common shares would be anti-dilutive.

12. Additional cash flow information

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

First Quarters Ended

    

October 2,

    

October 3,

2021

2020

(Thousands)

Non-cash Investing Activities:

Capital expenditures incurred but not paid

$

4,508

$

3,173

Non-cash Financing Activities:

Unsettled share repurchases

$

937

Supplemental Cash Flow Information:

Interest

$

11,636

$

12,538

Income tax net payments

27,977

19,258

Included in cash and cash equivalents as of October 2, 2021, and July 3, 2021, was $3.4 million and $3.8 million, respectively, of cash equivalents, which was primarily comprised of investment grade money market funds and overnight time deposits.

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AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

13. Segment information

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

First Quarters Ended

October 2,

October 3,

2021

    

2020

 

(Thousands)

Sales:

    

    

    

    

Electronic Components

$

5,129,497

$

4,382,148

Farnell

455,198

340,911

5,584,695

4,723,059

Operating income:

Electronic Components

$

162,462

$

84,440

Farnell

49,593

11,959

212,055

96,399

Corporate

(33,301)

(31,302)

Restructuring, integration and other expenses

 

(5,272)

 

(26,420)

Amortization of acquired intangible assets and other

(5,239)

(20,175)

Operating income

$

168,243

$

18,502

Sales, by geographic area:

Americas (1)

$

1,258,811

$

1,205,695

EMEA (2)

 

1,747,579

 

1,480,674

Asia/Pacific (3)

 

2,578,305

 

2,036,690

Sales

$

5,584,695

$

4,723,059

(1)

Includes sales from the United States of $1.16 billion and $1.13 billion for the first quarters ended October 2, 2021, and October 3, 2020, respectively.

(2)

Includes sales from Germany and Belgium of $697.1 million and $307.6 million, respectively, for the first quarter ended October 2, 2021. Includes sales from Germany and Belgium of $574.8 million and $294.4 million, respectively, for the first quarter ended October 3, 2020.

(3)

Includes sales from China (including Hong Kong), Taiwan and Singapore of $826.8 million, $1.20 billion and $264.0 million, respectively, for the first quarter ended October 2, 2021. Includes sales from China (including Hong Kong), Taiwan and Singapore of $631.8 million, $916.3 million and $272.0 million, respectively, for the first quarter ended October 3, 2020.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

October 2,

July 3,

 

2021

2021

 

 

(Thousands)

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

Americas (1)

$

138,380

$

146,042

EMEA (2)

 

178,887

 

185,753

Asia/Pacific