UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended | |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from _____ to _____ |
Commission File #
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction |
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| (IRS Employer | |
of incorporation or organization) |
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| Identification No.) |
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(Address of principal executive offices) |
| (Zip Code) |
(
(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: |
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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.
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).
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.
| Accelerated Filer ☐ |
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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
As of January 25, 2023, the total number of shares outstanding of the registrant’s Common Stock was
AVNET, INC. AND SUBSIDIARIES
INDEX
1
PART I
FINANCIAL INFORMATION
Item 1. | Financial Statements |
AVNET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
| December 31, |
| July 2, |
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2022 | 2022 |
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(Thousands, except share |
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amounts) |
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ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | | $ | | |||
Receivables |
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Inventories |
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Prepaid and other current assets |
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Total current assets |
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Property, plant and equipment, net |
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Goodwill |
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Operating lease assets | | | |||||
Other assets |
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Total assets | $ | | $ | | |||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Short-term debt | $ | | $ | | |||
Accounts payable |
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Accrued expenses and other | | | |||||
Short-term operating lease liabilities |
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Total current liabilities |
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Long-term debt |
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Long-term operating lease liabilities | | | |||||
Other liabilities |
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Total liabilities |
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Commitments and contingencies (Note 7) | |||||||
Shareholders’ equity: | |||||||
Common stock $ |
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Additional paid-in capital |
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Retained earnings |
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Accumulated other comprehensive loss |
| ( |
| ( | |||
Total shareholders’ equity |
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Total liabilities and shareholders’ equity | $ | | $ | |
See notes to consolidated financial statements.
2
AVNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Second Quarters Ended | Six Months Ended | |||||||||||
| December 31, |
| January 1, |
| December 31, |
| January 1, | |||||
2022 | 2022 | 2022 | 2022 | |||||||||
(Thousands, except per share amounts) | ||||||||||||
$ | | $ | | $ | | $ | | |||||
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Gross profit |
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Selling, general and administrative expenses |
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Restructuring, integration and other expenses |
| — |
| — |
| — |
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Operating income |
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Other income, net |
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Interest and other financing expenses, net |
| ( |
| ( |
| ( |
| ( | ||||
Gain on legal settlement (Note 7) | | — | | — | ||||||||
Income before taxes |
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Income tax expense |
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Net income | $ | | $ | | $ | | $ | | ||||
Earnings per share: | ||||||||||||
Basic | $ | | $ | | $ | | $ | | ||||
Diluted | $ | | $ | | $ | | $ | | ||||
Shares used to compute earnings per share: | ||||||||||||
Basic |
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Diluted |
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Cash dividends paid per common share | $ | | $ | | $ | | $ | |
See notes to consolidated financial statements.
3
AVNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Second Quarters Ended | Six Months Ended | |||||||||||
| December 31, |
| January 1, |
| December 31, |
| January 1, | |||||
2022 | 2022 | 2022 | 2022 | |||||||||
(Thousands) | ||||||||||||
Net income | $ | | $ | | $ | | $ | | ||||
Other comprehensive income (loss), net of tax: | ||||||||||||
Foreign currency translation and other |
| |
| ( |
| |
| ( | ||||
Pension adjustments, net |
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| |
| |
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Total comprehensive income | $ | | $ | | $ | | $ | |
See notes to consolidated financial statements.
4
AVNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
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| Accumulated |
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Common | Common | Additional | Other | Total | ||||||||||||||
Stock- | Stock- | Paid-In | Retained | Comprehensive | Shareholders’ | |||||||||||||
Shares | Amount | Capital | Earnings | (Loss) Income | Equity | |||||||||||||
(Thousands) | ||||||||||||||||||
Balance, July 2, 2022 |
| | $ | | $ | | $ | | $ | ( | $ | | ||||||
Net income |
| — |
| — |
| — |
| |
| — |
| | ||||||
Translation adjustments and other |
| — |
| — |
| — |
| — |
| ( |
| ( | ||||||
Pension liability adjustments, net | — | — | — | — | | | ||||||||||||
Cash dividends |
| — |
| — |
| — |
| ( |
| — |
| ( | ||||||
Repurchases of common stock |
| ( |
| ( | — |
| ( | — |
| ( | ||||||||
Stock-based compensation |
| | | | — | — | | |||||||||||
Balance, October 1, 2022 |
| | | | | ( | | |||||||||||
Net income |
| — |
| — |
| — |
| |
| — |
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Translation adjustments and other |
| — |
| — |
| — |
| — |
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Pension liability adjustments, net | — | — | — | — | | | ||||||||||||
Cash dividends |
| — |
| — |
| — |
| ( |
| — |
| ( | ||||||
Repurchases of common stock |
| ( |
| ( | — |
| ( | — |
| ( | ||||||||
Stock-based compensation |
| |
| |
| |
| — |
| — |
| | ||||||
Balance, December 31, 2022 | | $ | | $ | | $ | | $ | ( | $ | |
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| Accumulated |
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Common | Common | Additional | Other | Total | ||||||||||||||
Stock- | Stock- | Paid-In | Retained | Comprehensive | Shareholders’ | |||||||||||||
Shares | Amount | Capital | Earnings | (Loss) Income | Equity | |||||||||||||
(Thousands) | ||||||||||||||||||
Balance, July 3, 2021 |
| | $ | | $ | | $ | | $ | ( | $ | | ||||||
Net income |
| — |
| — |
| — |
| |
| — |
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Translation adjustments and other |
| — |
| — |
| — |
| — |
| ( |
| ( | ||||||
Pension liability adjustments, net | — | — | — | — | | | ||||||||||||
Cash dividends |
| — |
| — |
| — |
| ( |
| — |
| ( | ||||||
Repurchases of common stock |
| ( |
| ( | — |
| ( | — |
| ( | ||||||||
Stock-based compensation |
| | | | — | — |
| | ||||||||||
Balance, October 2, 2021 |
| | | | | ( | | |||||||||||
Net income |
| — |
| — |
| — |
| |
| — |
| | ||||||
Translation adjustments and other |
| — |
| — |
| — |
| — |
| ( |
| ( | ||||||
Pension liability adjustments, net | — | — | — | — | | | ||||||||||||
Cash dividends |
| — |
| — |
| — |
| ( |
| — |
| ( | ||||||
Repurchases of common stock |
| ( |
| ( | — |
| ( | — |
| ( | ||||||||
Stock-based compensation |
| |
| |
| |
| — |
| — |
| | ||||||
Balance, January 1, 2022 | | $ | | $ | | $ | | $ | ( | $ | |
See notes to consolidated financial statements.
5
AVNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended | ||||||
| December 31, |
| January 1, | |||
2022 | 2022 | |||||
(Thousands) | ||||||
Cash flows from operating activities: | ||||||
Net income | $ | | $ | | ||
Non-cash and other reconciling items: | ||||||
Depreciation |
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Amortization |
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Amortization of operating lease assets | | | ||||
Deferred income taxes |
| ( |
| ( | ||
Stock-based compensation |
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Other, net |
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Changes in (net of effects from businesses acquired and divested): | ||||||
Receivables |
| ( |
| ( | ||
Inventories |
| ( |
| ( | ||
Accounts payable |
| ( |
| | ||
Accrued expenses and other, net |
| |
| ( | ||
Net cash flows used for operating activities |
| ( |
| ( | ||
Cash flows from financing activities: | ||||||
Borrowings under accounts receivable securitization, net |
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Borrowings under senior unsecured credit facility, net | |
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Borrowings (repayments) under bank credit facilities and other debt, net |
| |
| ( | ||
Repurchases of common stock |
| ( |
| ( | ||
Dividends paid on common stock |
| ( |
| ( | ||
Other, net |
| ( |
| ( | ||
Net cash flows provided by financing activities |
| |
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Cash flows from investing activities: | ||||||
Purchases of property, plant and equipment |
| ( |
| ( | ||
Other, net |
| ( |
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Net cash flows (used) provided by investing activities |
| ( |
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Effect of currency exchange rate changes on cash and cash equivalents |
| |
| ( | ||
Cash and cash equivalents: | ||||||
— increase (decrease) | | ( | ||||
— at beginning of period | | | ||||
— at end of period | $ | | $ | |
See notes to consolidated financial statements.
6
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. Certain reclassifications have been made to fiscal 2022 balances to correspond to the fiscal 2023 consolidated financial statement presentation.
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 2, 2022.
Recently adopted accounting pronouncements
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU No. 2021-08”), which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with Topic 606 as if it had originated the contracts. The Company’s early adoption of ASU 2021-08 at the beginning of fiscal year 2023 did not have an impact on the Company’s Consolidated Financial Statements as the Company did not have any business combinations in the first six months of fiscal 2023.
Recently issued accounting pronouncements
In September 2022, the FASB issued ASU No. 2022-04, Liabilities (subtopic 405-50): Supplier Finance Programs (“ASU No. 2022-04”) to enhance the transparency of certain supplier finance programs to allow financial statement users to understand the effect on working capital, liquidity and cash flows. The new pronouncement requires disclosure of key terms of the programs, including a description of the payment terms, payment timing and assets pledged as security or other forms of guarantees provided to the finance provider or intermediary. Other requirements include the disclosure of the amount that remains unpaid as of the end of the reporting period, a description of where these obligations are presented in the balance sheet and a rollforward of the obligations during the annual period. The guidance is effective for the Company in the first quarter of fiscal 2024, except for the rollforward, which is effective in fiscal 2025. Early adoption is permitted. The Company is currently evaluating any impact from adoption of this pronouncement.
2. Receivables
The Company’s receivables and allowance for credit losses were as follows:
December 31, | July 2, | |||||
2022 | 2022 | |||||
(Thousands) | ||||||
Receivables | $ | | $ | | ||
Allowance for Credit Losses | ( | ( |
7
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company had the following activity in the allowance for credit losses during the first six months of fiscal 2023 and fiscal 2022:
December 31, | January 1, | |||||
2022 | 2022 | |||||
(Thousands) | ||||||
Balance at beginning of the period | $ | | $ | | ||
Credit Loss Provisions | | | ||||
Credit Loss Recoveries | ( | ( | ||||
Receivables Write Offs | ( | ( | ||||
Foreign Currency Effect and Other | | ( | ||||
Balance at end of the period | $ | | $ | |
3. Goodwill and intangible assets
Goodwill
The following table presents the change in goodwill by reportable segment for the six months ended December 31, 2022.
| Electronic |
|
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Components | Farnell | Total | |||||||
(Thousands) | |||||||||
Carrying value at July 2, 2022 (1) | $ | | $ | | $ | | |||
Foreign currency translation |
| |
| ( |
| ( | |||
Carrying value at December 31, 2022 (1) | $ | | $ | | $ | |
(1) | Includes accumulated impairments of $ |
Intangible Assets
The net book value of intangible assets were $
4. Debt
Short-term debt consists of the following (carrying balances in thousands):
December 31, | July 2, | December 31, | July 2, | ||||||||||
2022 |
| 2022 |
| 2022 |
| 2022 | |||||||
Interest Rate | Carrying Balance |
| |||||||||||
Other short-term debt | | % | | % | $ | | $ | | |||||
Short-term debt | $ | | $ | |
Other short-term debt consists primarily of various committed and uncommitted lines of credit and other forms of bank debt with financial institutions utilized primarily to support the ongoing working capital requirements of the Company, including its foreign operations.
8
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Long-term debt consists of the following (carrying balances in thousands):
December 31, | July 2, | December 31, | July 2, | ||||||||||
2022 |
| 2022 |
| 2022 |
| 2022 | |||||||
Interest Rate | Carrying Balance |
| |||||||||||
Revolving credit facilities: | |||||||||||||
Accounts receivable securitization program (due December 2024) | | % | | % | $ | | $ | | |||||
Credit Facility (due August 2027) | | % | — | | — | ||||||||
Public notes due: | |||||||||||||
April 2026 | | % | | % | | | |||||||
May 2031 | | % | | % | | | |||||||
June 2032 | | % | | % | | | |||||||
Long-term debt before discount and debt issuance costs |
| |
| | |||||||||
Discount and debt issuance costs – unamortized |
| ( |
| ( | |||||||||
Long-term debt | $ | | $ | |
In December 2022, the Company amended and extended for
In August 2022, the Company amended and extended its
As of December 31, 2022, the carrying value and fair value of the Company’s total debt was $
9
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
The components of lease cost related to the Company’s operating leases were as follows (in thousands):
Second Quarters Ended | Six Months Ended | |||||||||||
December 31, | January 1, | December 31, | January 1, | |||||||||
2022 |
| 2022 | 2022 |
| 2022 | |||||||
Operating lease cost | $ | | $ | | $ | | $ | | ||||
Variable lease cost | | | | | ||||||||
Total lease cost | $ | | $ | | $ | | $ | |
Future minimum operating lease payments as of December 31, 2022, are as follows (in thousands):
Fiscal Year | |||
Remainder of fiscal 2023 | $ | | |
2024 |
| | |
2025 |
| | |
2026 |
| | |
2027 |
| | |
Thereafter |
| | |
Total future operating lease payments | | ||
Total imputed interest on operating lease liabilities | ( | ||
Total operating lease liabilities | $ | |
Other information pertaining to operating leases consists of the following:
Six Months Ended | ||||||
December 31, | January 1, | |||||
2022 |
| 2022 | ||||
Operating Lease Term and Discount Rate | ||||||
Weighted-average remaining lease term in years | ||||||
Weighted-average discount rate | | % | | % |
Supplemental cash flow information related to the Company’s operating leases was as follows (in thousands):
Six Months Ended | ||||||
December 31, | January 1, | |||||
2022 |
| 2022 | ||||
Supplemental Cash Flow Information: | ||||||
Cash paid for operating lease liabilities | $ | | $ | | ||
Operating lease assets obtained from new operating lease liabilities | | |
10
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
6. Derivative financial instruments
Many of the Company’s subsidiaries purchase and sell products in currencies other than their functional currencies, 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
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:
December 31, |
| July 2, | ||||
2022 | 2022 | |||||
(Thousands) | ||||||
$ | | $ | | |||
| |
The amounts recorded to other (expense) income, net, related to derivative financial instruments for economic hedges are as follows:
Second Quarters Ended | Six Months Ended | |||||||||||
December 31, |
| January 1, |
| December 31, |
| January 1, | ||||||
2022 | 2022 | 2022 | 2022 | |||||||||
(Thousands) | ||||||||||||
$ | | $ | ( | $ | | $ | ( |
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.
11
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
7. Commitments and contingencies
From time to time, the Company may become a party to, or be otherwise involved in, various lawsuits, claims, investigations and other legal proceedings arising in the ordinary course of conducting its business. While litigation is subject to inherent uncertainties, management does not anticipate that any such matters will have a material adverse effect on the Company’s financial condition, liquidity, or results of operations.
The Company is also currently subject to various pending and potential legal matters and investigations relating to compliance with governmental laws and regulations. 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 December 31, 2022, and July 2, 2022, the Company had aggregate estimated liabilities of $
Gain on Legal Settlement
During the second quarter of fiscal 2023, the Company recorded a gain on legal settlement of $
8. Income taxes
The Company’s effective tax rate on its income before taxes was
During the second quarter of fiscal 2022, the Company’s effective tax rate on its income before taxes was
For the first six months of fiscal 2023, the Company’s effective tax rate on its income before taxes was
During the first six months of fiscal 2022, the Company’s effective tax rate on its income before taxes was
12
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:
Second Quarters Ended | Six Months Ended | |||||||||||
| December 31, |
| January 1, |
| December 31, |
| January 1, | |||||
2022 |
| 2022 |
| 2022 |
| 2022 | ||||||
(Thousands) | ||||||||||||
Service cost | $ | | $ | | $ | | $ | | ||||
Total net periodic pension cost within selling, general and administrative expenses | | | | | ||||||||
Interest cost |
| |
| |
| |
| | ||||
Expected return on plan assets |
| ( |
| ( |
| ( |
| ( | ||||
Amortization of prior service cost |
| |
| |
| |
| | ||||
Recognized net actuarial loss |
| |
| |
| |
| | ||||
Total net periodic pension benefit within other income, net | ( | ( | ( | ( | ||||||||
Net periodic pension benefit | $ | ( | $ | ( | $ | ( | $ | ( |
The Company made $
10. Shareholders’ equity
Share repurchase program
In May 2022, the Company’s Board of Directors approved a new share repurchase plan with an authorization to repurchase up to an aggregate of $
Common stock dividend
In November 2022, the Company’s Board of Directors approved a dividend of $
13
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)