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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 April 1, 2023

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 April 29, 2023, the total number of shares outstanding of the registrant’s Common Stock was 91,399,349 shares, net of treasury shares.

AVNET, INC. AND SUBSIDIARIES

INDEX

Page No.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Consolidated Balance Sheets at April 1, 2023 and July 2, 2022

2

Consolidated Statements of Operations for the third quarters and nine months ended April 1, 2023 and April 2, 2022

3

Consolidated Statements of Comprehensive Income for the third quarters and nine months ended April 1, 2023 and April 2, 2022

4

Consolidated Statements of Shareholders’ Equity for the third quarters and nine months ended April 1, 2023 and April 2, 2022

5

Consolidated Statements of Cash Flows for the nine months ended April 1, 2023 and April 2, 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

24

Item 4. Controls and Procedures

24

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

25

Item 1A. Risk Factors

25

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

25

Item 6. Exhibits

26

Signature Page

27

1

PART I

FINANCIAL INFORMATION

Item 1.

Financial Statements

AVNET, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

    

April 1,

    

July 2,

 

2023

2022

 

(Thousands, except share

 

amounts)

 

ASSETS

Current assets:

Cash and cash equivalents

$

185,937

$

153,693

Receivables

 

4,670,636

 

4,301,002

Inventories

 

5,354,009

 

4,244,148

Prepaid and other current assets

 

232,956

 

177,783

Total current assets

 

10,443,538

 

8,876,626

Property, plant and equipment, net

 

400,320

 

315,204

Goodwill

 

770,906

 

758,833

Operating lease assets

222,852

227,138

Other assets

 

271,694

 

210,731

Total assets

$

12,109,310

$

10,388,532

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Short-term debt

$

76,335

$

174,422

Accounts payable

 

3,136,862

 

3,431,683

Accrued expenses and other

704,684

591,020

Short-term operating lease liabilities

 

51,869

 

54,529

Total current liabilities

 

3,969,750

 

4,251,654

Long-term debt

 

3,032,864

 

1,437,400

Long-term operating lease liabilities

192,519

199,418

Other liabilities

 

278,576

 

307,300

Total liabilities

 

7,473,709

 

6,195,772

Commitments and contingencies (Note 7)

Shareholders’ equity:

Common stock $1.00 par; authorized 300,000,000 shares; issued 91,414,383 shares and 95,701,630 shares, respectively

 

91,414

 

95,702

Additional paid-in capital

 

1,678,673

 

1,656,907

Retained earnings

 

3,249,912

 

2,921,399

Accumulated other comprehensive loss

 

(384,398)

 

(481,248)

Total shareholders’ equity

 

4,635,601

 

4,192,760

Total liabilities and shareholders’ equity

$

12,109,310

$

10,388,532

See notes to consolidated financial statements.

2

AVNET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

Third Quarters Ended

Nine Months Ended

    

April 1,

    

April 2,

    

April 1,

    

April 2,

2023

2022

2023

2022

(Thousands, except per share amounts)

Sales

$

6,514,619

$

6,488,143

$

19,982,273

$

17,938,055

Cost of sales

 

5,702,771

 

5,675,110

 

17,618,151

 

15,752,295

Gross profit

 

811,848

 

813,033

 

2,364,122

 

2,185,760

Selling, general and administrative expenses

 

498,219

 

512,364

 

1,460,984

 

1,499,904

Russian-Ukraine conflict related expenses

26,261

26,261

Restructuring, integration and other expenses

 

 

 

 

5,272

Operating income

 

313,629

 

274,408

 

903,138

 

654,323

Other income (expense), net

 

1,653

 

(469)

 

3,452

 

858

Interest and other financing expenses, net

 

(71,695)

 

(25,914)

 

(175,813)

 

(70,388)

Gain on legal settlements (Note 7)

61,705

Income before taxes

 

243,587

 

248,025

 

792,482

 

584,793

Income tax expense

 

56,161

 

64,608

 

176,910

 

139,237

Net income

$

187,426

$

183,417

$

615,572

$

445,556

Earnings per share:

Basic

$

2.05

$

1.86

$

6.67

$

4.50

Diluted

$

2.03

$

1.84

$

6.58

$

4.44

Shares used to compute earnings per share:

Basic

 

91,436

 

98,659

 

92,226

 

99,113

Diluted

 

92,456

 

99,486

 

93,616

 

100,296

Cash dividends paid per common share

$

0.29

$

0.26

$

0.87

$

0.74

See notes to consolidated financial statements.

3

AVNET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

Third Quarters Ended

Nine Months Ended

    

April 1,

    

April 2,

     

April 1,

    

April 2,

2023

2022

2023

2022

(Thousands)

Net income

$

187,426

$

183,417

$

615,572

$

445,556

Other comprehensive income (loss), net of tax:

Foreign currency translation and other

 

60,082

 

(66,033)

 

101,671

 

(144,052)

Cross-currency swap

(15,407)

(15,407)

Pension adjustments, net

 

387

 

4,009

 

10,586

 

12,032

Total other comprehensive income (loss), net of tax

45,062

(62,024)

96,850

(132,020)

Total comprehensive income

$

232,488

$

121,393

$

712,422

$

313,536

See notes to consolidated financial statements.

4

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

Other comprehensive loss

 

 

 

 

 

(191,797)

 

(191,797)

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

Other comprehensive income

 

 

 

 

 

243,585

 

243,585

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

Net income

 

 

 

 

187,426

 

 

187,426

Other comprehensive income

 

 

 

 

 

45,062

 

45,062

Cash dividends

 

 

 

 

(26,503)

 

 

(26,503)

Stock-based compensation

 

679

 

679

 

(726)

 

 

 

(47)

Balance, April 1, 2023

91,414

$

91,414

$

1,678,673

$

3,249,912

$

(384,398)

$

4,635,601

    

    

    

    

    

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

Other comprehensive loss

 

 

 

 

 

(25,024)

 

(25,024)

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

Other comprehensive loss

 

 

 

 

 

(44,972)

 

(44,972)

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

Net income

 

 

 

 

183,417

 

 

183,417

Other comprehensive loss

 

 

 

 

 

(62,024)

 

(62,024)

Cash dividends

 

 

 

 

(25,612)

 

 

(25,612)

Repurchases of common stock

 

(1,101)

 

(1,101)

 

(44,031)

 

(45,132)

Stock-based compensation

 

651

 

651

 

2,194

 

 

 

2,845

Balance, April 2, 2022

97,980

$

97,980

$

1,644,715

$

2,799,792

$

(285,767)

$

4,256,720

See notes to consolidated financial statements.

5

AVNET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Nine Months Ended

    

April 1,

    

April 2,

2023

2022

(Thousands)

Cash flows from operating activities:

Net income

$

615,572

$

445,556

Non-cash and other reconciling items:

Depreciation

 

59,870

 

65,719

Amortization

 

5,169

 

12,034

Amortization of operating lease assets

39,962

40,298

Deferred income taxes

 

(11,053)

 

1,423

Stock-based compensation

 

30,057

 

28,638

Other, net

 

7,986

 

47,667

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

Receivables

 

(320,097)

 

(880,957)

Inventories

 

(1,033,381)

 

(549,999)

Accounts payable

 

(331,352)

 

628,822

Accrued expenses and other, net

 

(10,974)

 

141,381

Net cash flows used for operating activities

 

(948,241)

 

(19,418)

Cash flows from financing activities:

Issuance of notes, net of discounts

 

498,615

 

Borrowings under accounts receivable securitization, net

 

261,000

 

57,400

Borrowings under senior unsecured credit facility, net

763,991

 

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

 

(90,256)

 

117,982

Repurchases of common stock

 

(221,282)

 

(88,952)

Dividends paid on common stock

 

(79,807)

 

(73,253)

Other, net

 

(9,814)

 

(16,853)

Net cash flows provided by (used for) financing activities

 

1,122,447

 

(3,676)

Cash flows from investing activities:

Purchases of property, plant and equipment

 

(137,804)

 

(33,679)

Proceeds from liquidation of Company owned life insurance policies

 

 

84,343

Other, net

 

(16,326)

 

724

Net cash flows (used) provided by investing activities

 

(154,130)

 

51,388

Effect of currency exchange rate changes on cash and cash equivalents

 

12,168

 

(28,528)

Cash and cash equivalents:

— increase (decrease)

32,244

(234)

— at beginning of period

153,693

199,691

— at end of period

$

185,937

$

199,457

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. 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 nine 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 qualitative and quantitative disclosure sufficient to enable users of the financial statements to understand the nature, activity during the period, changes from period to period and potential magnitude of such programs. The guidance is effective for the Company in the first quarter of fiscal 2024, except for the amendment on roll-forward information, which is effective in fiscal 2025. The Company is currently evaluating any impact from the adoption of this pronouncement.

2. Receivables

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

April 1,

July 2,

2023

2022

(Thousands)

Receivables

$

4,780,858

$

4,414,904

Allowance for Credit Losses

(110,222)

(113,902)

7

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 nine months of fiscal 2023 and fiscal 2022:

April 1,

April 2,

2023

2022

(Thousands)

Balance at beginning of the period

$

113,902

$

88,160

Credit Loss Provisions

9,079

21,746

Russian-Ukraine conflict Credit Loss Provisions

17,202

Credit Loss Recoveries

(140)

(300)

Receivables Write Offs

(14,868)

(9,194)

Foreign Currency Effect and Other

2,249

(2,623)

Balance at end of the period

$

110,222

$

114,991

During the first nine months of fiscal 2022, the Company incurred $26.3 million of expense, primarily related to $17.2 million of credit loss provisions associated with accounts receivable from Russian customers that were no longer considered collectible. The remaining $9.1 million of expenses were related to product write downs and other costs associated with the wind-down of the Company’s business operations in Russia and Ukraine.

3. Goodwill and intangible assets

Goodwill

The following table presents the change in goodwill by reportable segment for the nine months ended April 1, 2023.

  

Electronic

  

  

Components

Farnell

Total

(Thousands)

Carrying value at July 2, 2022 (1)

$

291,526

$

467,307

$

758,833

Foreign currency translation

 

4,134

 

7,939

 

12,073

Carrying value at April 1, 2023 (1)

$

295,660

$

475,246

$

770,906

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

Intangible Assets

The net book value of intangible assets was $7.4 million as of April 1, 2023, which is not material to the consolidated financial statements. Intangible asset amortization expense was $0.9 million and $3.1 million for the third quarters of fiscal 2023 and 2022, respectively, and $5.2 million and $12.0 million for the first nine months of fiscal 2023 and 2022, respectively.

8

Table of Contents

AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

4. Debt

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

April 1,

July 2,

April 1,

July 2,

2023

   

2022

   

2023

   

2022

Interest Rate

Carrying Balance

 

Other short-term debt

4.56

%

2.09

%

$

76,335

$

174,422

Short-term debt

$

76,335

$

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.

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

April 1,

July 2,

April 1,

July 2,

2023

    

2022

  

2023

  

2022

Interest Rate

Carrying Balance

 

Revolving credit facilities:

Accounts receivable securitization program (due December 2024)

5.65

%

2.55

%

$

558,800

$

297,800

Credit Facility (due August 2027)

4.61

%

838,629

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

March 2028

6.25

%

 

500,000

 

Long-term debt before discount and debt issuance costs

 

3,047,429

 

1,447,800

Discount and debt issuance costs – unamortized

 

(14,565)

 

(10,400)

Long-term debt

$

3,032,864

$

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 $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 $1.21 billion and $1.12 billion at April 1, 2023, and July 2, 2022, respectively. The Securitization Program contains certain covenants relating to the quality of the receivables sold.

9

Table of Contents

AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

In 2022, the Company amended and extended its five-year $1.50 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 April 1, 2023, and July 2, 2022, there were $1.0 million and $1.2 million, respectively, in letters of credit issued under the Credit Facility. 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 April 1, 2023, and July 2, 2022.

In March 2023, the Company issued $500.0 million in aggregate principal amount of 6.250% Notes due 2028. The related discount and issuance costs will be amortized to interest expense over the term of the notes and are not considered material to the consolidated financial statements. Interest is payable semi-annually, in arrears, in March and September, commencing September 2023.

As of April 1, 2023, the carrying value and fair value of the Company’s total debt was $3.11 billion and $3.04 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).

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):

Third Quarters Ended

Nine Months Ended

April 1,

April 2,

April 1,

April 2,

2023

  

2022

2023

  

2022

Operating lease cost

$

14,354

$

17,220

$

47,836

$

52,196

Variable lease cost

5,043

6,853

17,071

19,704

Total lease cost

$

19,397

$

24,073

$

64,907

$

71,900

Future minimum operating lease payments as of April 1, 2023, are as follows (in thousands):

Fiscal Year

Remainder of fiscal 2023

$

17,356

2024

 

55,302

2025

 

44,128

2026

 

34,699

2027

 

22,835

Thereafter

 

116,335

Total future operating lease payments

290,655

Total imputed interest on operating lease liabilities

(46,267)

Total operating lease liabilities

$

244,388

10

Table of Contents

AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Other information pertaining to operating leases consists of the following:

Nine Months Ended

April 1,

April 2,

2023

  

2022

Operating Lease Term and Discount Rate

Weighted-average remaining lease term in years

8.4

8.8

Weighted-average discount rate

3.8

%

3.8

%

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

Nine Months Ended

April 1,

April 2,

2023

  

2022

Supplemental Cash Flow Information:

Cash paid for operating lease liabilities

$

43,030

$

43,109

Operating lease assets obtained from new operating lease liabilities

34,318