SEC Filing | Avnet, Inc.

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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 December 31, 2022

☐	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 January 25, 2023, the total number of shares outstanding of the registrant’s Common Stock was 91,379,483 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 December 31, 2022 and July 2, 2022	2

Consolidated Statements of Operations for the second quarters and six months ended December 31, 2022 and January 1, 2022	3

Consolidated Statements of Comprehensive Income for the second quarters and six months ended December 31, 2022 and January 1, 2022	4

Consolidated Statements of Shareholders’ Equity for the second quarters and six months ended December 31, 2022 and January 1, 2022	5

Consolidated Statements of Cash Flows for the six months ended December 31, 2022 and January 1, 2022	6

Notes to Consolidated Financial Statements	7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	17

Item 3. Quantitative and Qualitative Disclosures About Market Risk	23

Item 4. Controls and Procedures	24

PART II. OTHER INFORMATION

Item 1. Legal Proceedings	24

Item 1A. Risk Factors	24

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	25

Item 6. Exhibits	26

Signature Page	27

Table of Contents

PART I

FINANCIAL INFORMATION

Item 1.

Financial Statements

AVNET, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)


	December 31,		July 2,
	2022		2022

	(Thousands, except share
	amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	324,778	$	153,693
Receivables		4,789,402		4,301,002
Inventories		4,972,898		4,244,148
Prepaid and other current assets		216,487		177,783
Total current assets		10,303,565		8,876,626
Property, plant and equipment, net		378,269		315,204
Goodwill		755,030		758,833
Operating lease assets		229,537		227,138
Other assets		263,473		210,731
Total assets	$	11,929,874	$	10,388,532
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term debt	$	209,401	$	174,422
Accounts payable		3,106,667		3,431,683
Accrued expenses and other		688,643		591,020
Short-term operating lease liabilities		52,944		54,529
Total current liabilities		4,057,655		4,251,654
Long-term debt		2,979,823		1,437,400
Long-term operating lease liabilities		198,986		199,418
Other liabilities		263,747		307,300
Total liabilities		7,500,211		6,195,772
Commitments and contingencies (Note 7)
Shareholders’ equity:
Common stock $1.00 par; authorized 300,000,000 shares; issued 90,735,161 shares and 95,701,630 shares, respectively		90,735		95,702
Additional paid-in capital		1,679,399		1,656,907
Retained earnings		3,088,989		2,921,399
Accumulated other comprehensive loss		(429,460)		(481,248)
Total shareholders’ equity		4,429,663		4,192,760
Total liabilities and shareholders’ equity	$	11,929,874	$	10,388,532

See notes to consolidated financial statements.

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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)
Sales	$	6,717,521	$	5,865,217	$	13,467,654	$	11,449,912
Cost of sales		5,933,421		5,152,182		11,915,381		10,077,185
Gross profit		784,100		713,035		1,552,273		1,372,727
Selling, general and administrative expenses		485,127		501,363		962,764		987,540
Restructuring, integration and other expenses		—		—		—		5,272
Operating income		298,973		211,672		589,509		379,915
Other income, net		1,476		1,737		1,800		1,327
Interest and other financing expenses, net		(59,020)		(21,630)		(104,118)		(44,474)
Gain on legal settlement (Note 7)		61,705		—		61,705		—
Income before taxes		303,134		191,779		548,896		336,768
Income tax expense		59,248		40,958		120,749		74,629
Net income	$	243,886	$	150,821	$	428,147	$	262,139

Earnings per share:
Basic	$	2.67	$	1.52	$	4.62	$	2.64
Diluted	$	2.63	$	1.50	$	4.55	$	2.60

Shares used to compute earnings per share:
Basic		91,192		99,032		92,621		99,340
Diluted		92,755		100,286		94,195		100,701
Cash dividends paid per common share	$	0.29	$	0.24	$	0.58	$	0.48

See notes to consolidated financial statements.

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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	$	243,886	$	150,821	$	428,147	$	262,139
Other comprehensive income (loss), net of tax:
Foreign currency translation and other		243,252		(48,982)		41,589		(78,018)
Pension adjustments, net		333		4,010		10,199		8,022
Total comprehensive income	$	487,471	$	105,849	$	479,935	$	192,143

See notes to consolidated financial statements.

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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 2, 2022		95,702	$	95,702	$	1,656,907	$	2,921,399	$	(481,248)	$	4,192,760
Net income		—		—		—		184,261		—		184,261
Translation adjustments and other		—		—		—		—		(201,663)		(201,663)
Pension liability adjustments, net		—		—		—		—		9,866		9,866
Cash dividends		—		—		—		(26,998)		—		(26,998)
Repurchases of common stock		(3,445)		(3,445)		—		(144,457)		—		(147,902)
Stock-based compensation		72		72		8,939		—		—		9,011
Balance, October 1, 2022		92,329		92,329		1,665,846		2,934,205		(673,045)		4,019,335
Net income		—		—		—		243,886		—		243,886
Translation adjustments and other		—		—		—		—		243,252		243,252
Pension liability adjustments, net		—		—		—		—		333		333
Cash dividends		—		—		—		(26,307)		—		(26,307)
Repurchases of common stock		(1,629)		(1,629)		—		(62,795)		—		(64,424)
Stock-based compensation		35		35		13,553		—		—		13,588
Balance, December 31, 2022		90,735	$	90,735	$	1,679,399	$	3,088,989	$	(429,460)	$	4,429,663


									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
Net income		—		—		—		150,821		—		150,821
Translation adjustments and other		—		—		—		—		(48,982)		(48,982)
Pension liability adjustments, net		—		—		—		—		4,010		4,010
Cash dividends		—		—		—		(23,749)		—		(23,749)
Repurchases of common stock		(921)		(921)		—		(34,421)		—		(35,342)
Stock-based compensation		15		15		10,854		—		—		10,869
Balance, January 1, 2022		98,430	$	98,430	$	1,642,521	$	2,686,018	$	(223,743)	$	4,203,226

See notes to consolidated financial statements.

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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	$	428,147	$	262,139

Non-cash and other reconciling items:
Depreciation		39,411		43,876
Amortization		4,294		8,964
Amortization of operating lease assets		26,414		27,426
Deferred income taxes		(15,581)		(4,451)
Stock-based compensation		21,338		19,556
Other, net		7,199		10,281
Changes in (net of effects from businesses acquired and divested):
Receivables		(469,650)		(558,702)
Inventories		(686,884)		(359,755)
Accounts payable		(341,210)		328,574
Accrued expenses and other, net		20,021		(41,117)
Net cash flows used for operating activities		(966,501)		(263,209)

Cash flows from financing activities:
Borrowings under accounts receivable securitization, net		352,200		190,400
Borrowings under senior unsecured credit facility, net		1,132,245		109,669
Borrowings (repayments) under bank credit facilities and other debt, net		47,712		(1,550)
Repurchases of common stock		(221,282)		(45,570)
Dividends paid on common stock		(53,304)		(47,642)
Other, net		(1,048)		(6,069)
Net cash flows provided by financing activities		1,256,523		199,238

Cash flows from investing activities:
Purchases of property, plant and equipment		(111,436)		(22,116)
Other, net		(16,279)		68,270
Net cash flows (used) provided by investing activities		(127,715)		46,154

Effect of currency exchange rate changes on cash and cash equivalents		8,778		(14,056)

Cash and cash equivalents:
— increase (decrease)		171,085		(31,873)
— at beginning of period		153,693		199,691
— at end of period	$	324,778	$	167,818

See notes to consolidated financial statements.

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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	$	4,895,907	$	4,414,904
Allowance for Credit Losses		(106,505)		(113,902)

Table of Contents

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	$	113,902	$	88,160
Credit Loss Provisions		4,803		8,391
Credit Loss Recoveries		(456)		(321)
Receivables Write Offs		(12,476)		(4,930)
Foreign Currency Effect and Other		732		(1,726)
Balance at end of the period	$	106,505	$	89,574

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
	Components		Farnell		Total

	(Thousands)
Carrying value at July 2, 2022 ⁽¹⁾	$	291,526	$	467,307	$	758,833
Foreign currency translation		569		(4,372)		(3,803)
Carrying value at December 31, 2022 ⁽¹⁾	$	292,095	$	462,935	$	755,030

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

Intangible Assets

The net book value of intangible assets were $8.2 million as of December 31, 2022, which is not material to the consolidated financial statements. Intangible asset amortization expense was $1.5 million and $3.8 million for the second quarters of fiscal 2023 and 2022, respectively, and $4.3 million and $9.0 million for the first six months of fiscal 2023 and 2022, respectively.

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	4.85	%	2.09	%	$	209,401	$	174,422
Short-term debt					$	209,401	$	174,422

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.

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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)	5.21	%	2.55	%	$	650,000	$	297,800
Credit Facility (due August 2027)	4.37	%	—			1,189,742		—
Public notes due:
April 2026	4.63	%	4.63	%		550,000		550,000
May 2031	3.00	%	3.00	%		300,000		300,000
June 2032	5.50	%	5.50	%		300,000		300,000
Long-term debt before discount and debt issuance costs						2,989,742		1,447,800
Discount and debt issuance costs – unamortized						(9,919)		(10,400)
Long-term debt					$	2,979,823	$	1,437,400

In December 2022, 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 of up to a maximum of $650 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 $1.28 billion and $1.12 billion at December 31, 2022, and July 2, 2022, respectively. The Securitization Program contains certain covenants relating to the quality of the receivables sold.

In August 2022, the Company amended and extended its five-year $1.25 billion revolving credit facility (the “Credit Facility”) with a syndicate of banks, which expires in August 2027. 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. As of December 31, 2022, and July 2, 2022, there were $1.0 million and $1.2 million, respectively, in letters of credit issued under the Credit Facility. Subject to certain conditions, the Credit Facility may be increased up to $1.50 billion through an amendment, which the Company obtained in November 2022. 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 a financial covenant requiring the Company to maintain a leverage ratio not to exceed a certain threshold, which the Company was in compliance with as of December 31, 2022, and July 2, 2022.

As of December 31, 2022, the carrying value and fair value of the Company’s total debt was $3.19 billion and $3.08 billion, respectively. At July 2, 2022, the carrying value and fair value of the Company’s total debt was $1.61 billion and $1.55 billion, respectively. Fair value for the public notes was estimated based upon quoted market prices (Level 1) 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 (Level 2).

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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 15 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):


	Second Quarters Ended				Six Months Ended
	December 31,		January 1,		December 31,		January 1,
	2022		2022		2022		2022
Operating lease cost	$	16,917	$	17,129	$	33,482	$	34,975
Variable lease cost		5,715		6,733		12,028		12,851
Total lease cost	$	22,632	$	23,862	$	45,510	$	47,826

Future minimum operating lease payments as of December 31, 2022, are as follows (in thousands):


Fiscal Year
Remainder of fiscal 2023	$	32,757
2024		53,201
2025		42,838
2026		33,816
2027		22,376
Thereafter		114,900
Total future operating lease payments		299,888
Total imputed interest on operating lease liabilities		(47,958)
Total operating lease liabilities	$	251,930

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	8.4		8.9
Weighted-average discount rate	3.8	%	3.8	%

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	$	28,463	$	29,456
Operating lease assets obtained from new operating lease liabilities		29,640		13,478

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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 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 income, 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 December 31, 2022, and July 2, 2022. 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:


	December 31,		July 2,
	2022		2022

	(Thousands)
Prepaid and other current assets	$	59,693	$	24,907
Accrued expenses and other		36,536		29,663

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)
Net derivative financial instrument gain (loss)	$	11,543	$	(7,012)	$	11,184	$	(15,783)

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.

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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 $14.7 million classified within accrued expenses and other for such compliance-related matters that were reasonably estimable as of such dates.

Gain on Legal Settlement

During the second quarter of fiscal 2023, the Company recorded a gain on legal settlement of $61.7 million in connection with the settlement of claims filed against certain manufacturers of capacitors. As of December 31, 2022, the Company has received $51.2 million in cash related to these settlements, which were classified as operating cash flows in the Company’s Consolidated Statements of Cash Flows.

8. Income taxes

The Company’s effective tax rate on its income before taxes was 19.5% in the second quarter of fiscal 2023. During the second quarter of fiscal 2023, the Company’s effective tax rate was favorably impacted primarily by (i) decreases to unrecognized tax benefit reserves, partially offset by (ii) the mix of income in higher tax jurisdictions.

During the second quarter of fiscal 2022, the Company’s effective tax rate on its income before taxes was 21.4%. During the second quarter of fiscal 2022, there were no individual items impacting the Company’s effective tax rate.

For the first six months of fiscal 2023, the Company’s effective tax rate on its income before taxes was 22.0%. The effective tax rate for the first six months of fiscal 2023 was unfavorably impacted primarily by (i) the mix of income in higher tax jurisdictions, partially offset by (ii) decreases to unrecognized tax benefit reserves.

During the first six months of fiscal 2022, the Company’s effective tax rate on its income before taxes was 22.2%. The effective tax rate for the first six months of fiscal 2022 was unfavorably impacted primarily by increases to valuation allowances.

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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:


	Second Quarters Ended				Six Months Ended
	December 31,		January 1,		December 31,		January 1,
	2022		2022		2022		2022

	(Thousands)
Service cost	$	3,004	$	3,751	$	6,008	$	7,503
Total net periodic pension cost within selling, general and administrative expenses		3,004		3,751		6,008		7,503

Interest cost		6,683		3,947		13,365		7,894
Expected return on plan assets		(12,215)		(12,284)		(24,430)		(24,568)
Amortization of prior service cost		1		1		2		2
Recognized net actuarial loss		618		4,086		1,235		8,172
Total net periodic pension benefit within other income, net		(4,913)		(4,250)		(9,828)		(8,500)

Net periodic pension benefit	$	(1,909)	$	(499)	$	(3,820)	$	(997)

The Company made $4.0 million of contributions during the first six months of fiscal 2023 and expects to make additional contributions to the Plan of $4.0 million in the remainder of fiscal 2023.

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 $600 million 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 second quarter of fiscal 2023, the Company repurchased 1.6 million shares under this program for a total cost of $64.4 million. As of December 31, 2022, the Company had $319.0 million remaining under its share repurchase authorization.

Common stock dividend

In November 2022, the Company’s Board of Directors approved a dividend of $0.29 per common share and dividend payments of $26.3 million were made in December 2022.

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AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

11. Earnings per share

Second Quarters Ended

Six Months Ended

December 31,

January 1,

December 31,

January 1,

2022

(Thousands, except per share data)

Numerator:

Net income