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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 December 30, 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 January 27, 2024, the total number of shares outstanding of the registrant’s Common Stock was 90,363,645 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 December 30, 2023, and July 1, 2023

2

Consolidated Statements of Operations for the second quarters and six months ended December 30, 2023, and December 31, 2022

3

Consolidated Statements of Comprehensive Income for the second quarters and six months ended December 30, 2023, and December 31, 2022

4

Consolidated Statements of Shareholders’ Equity for the second quarters and six months ended December 30, 2023, and December 31, 2022

5

Consolidated Statements of Cash Flows for the six months ended December 30, 2023, and December 31, 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)

    

December 30,

    

July 1,

 

2023

2023

 

(Thousands, except share

 

amounts)

 

ASSETS

Current assets:

Cash and cash equivalents

$

272,850

$

288,230

Receivables

 

4,508,742

 

4,763,788

Inventories

 

6,115,999

 

5,465,031

Prepaid and other current assets

 

241,371

 

233,804

Total current assets

 

11,138,962

 

10,750,853

Property, plant and equipment, net

 

563,758

 

441,557

Goodwill

 

787,007

 

780,629

Operating lease assets

227,145

221,698

Other assets

 

280,302

 

282,422

Total assets

$

12,997,174

$

12,477,159

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Short-term debt

$

696,329

$

70,636

Accounts payable

 

3,308,060

 

3,373,820

Accrued expenses and other

705,745

753,130

Short-term operating lease liabilities

 

55,424

 

51,792

Total current liabilities

 

4,765,558

 

4,249,378

Long-term debt

 

2,753,521

 

2,988,029

Long-term operating lease liabilities

191,521

190,621

Other liabilities

 

276,191

 

297,462

Total liabilities

 

7,986,791

 

7,725,490

Commitments and contingencies (Note 7)

Shareholders’ equity:

Common stock $1.00 par; authorized 300,000,000 shares; issued 89,760,434 shares and 91,504,053 shares, respectively

 

89,760

 

91,504

Additional paid-in capital

 

1,713,881

 

1,691,334

Retained earnings

 

3,564,195

 

3,378,212

Accumulated other comprehensive loss

 

(357,453)

 

(409,381)

Total shareholders’ equity

 

5,010,383

 

4,751,669

Total liabilities and shareholders’ equity

$

12,997,174

$

12,477,159

See notes to consolidated financial statements.

2

AVNET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

Second Quarters Ended

Six Months Ended

    

December 30,

    

December 31,

    

December 30,

    

December 31,

2023

2022

2023

2022

(Thousands, except per share amounts)

Sales

$

6,204,914

$

6,717,521

$

12,540,562

$

13,467,654

Cost of sales

 

5,498,730

 

5,933,421

 

11,086,273

 

11,915,381

Gross profit

 

706,184

 

784,100

 

1,454,289

 

1,552,273

Selling, general and administrative expenses

 

464,692

 

485,127

 

951,977

 

962,764

Restructuring, integration and other expenses

 

5,235

 

 

12,286

 

Operating income

 

236,257

 

298,973

 

490,026

 

589,509

Other (expense) income, net

 

(8,397)

 

1,476

 

(2,437)

 

1,800

Interest and other financing expenses, net

 

(74,302)

 

(59,020)

 

(145,098)

 

(104,118)

Gain on legal settlements and other

61,705

86,499

61,705

Income before taxes

 

153,558

 

303,134

 

428,990

 

548,896

Income tax expense

 

35,627

 

59,248

 

101,791

 

120,749

Net income

$

117,931

$

243,886

$

327,199

$

428,147

Earnings per share:

Basic

$

1.31

$

2.67

$

3.60

$

4.62

Diluted

$

1.28

$

2.63

$

3.54

$

4.55

Shares used to compute earnings per share:

Basic

 

90,253

 

91,192

 

90,874

 

92,621

Diluted

 

91,792

 

92,755

 

92,485

 

94,195

Cash dividends paid per common share

$

0.31

$

0.29

$

0.62

$

0.58

See notes to consolidated financial statements.

3

AVNET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

Second Quarters Ended

Six Months Ended

    

December 30,

    

December 31,

     

December 30,

    

December 31,

2023

2022

2023

2022

(Thousands)

Net income

$

117,931

$

243,886

$

327,199

$

428,147

Other comprehensive income (loss), net of tax:

Foreign currency translation and other

169,163

243,252

 

62,127

 

41,589

Cross-currency swap

(24,199)

(12,391)

Pension adjustments

725

333

 

2,192

 

10,199

Total other comprehensive income, net of tax

145,689

243,585

51,928

51,788

Total comprehensive income, net of tax

$

263,620

$

487,471

$

379,127

$

479,935

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 1, 2023

 

91,504

$

91,504

$

1,691,334

$

3,378,212

$

(409,381)

$

4,751,669

Net income

 

 

 

 

209,268

 

 

209,268

Other comprehensive loss

 

 

 

 

 

(93,761)

 

(93,761)

Cash dividends

 

 

 

 

(28,320)

 

 

(28,320)

Repurchases of common stock

 

(559)

 

(559)

 

(26,484)

 

(27,043)

Stock-based compensation

 

39

39

10,731

10,770

Balance, September 30, 2023

 

90,984

90,984

1,702,065

3,532,676

(503,142)

4,822,583

Net income

 

 

 

 

117,931

 

 

117,931

Other comprehensive income

 

 

 

 

 

145,689

 

145,689

Cash dividends

 

 

 

 

(27,817)

 

 

(27,817)

Repurchases of common stock

 

(1,255)

 

(1,255)

 

(58,595)

 

(59,850)

Stock-based compensation

 

31

 

31

 

11,816

 

 

 

11,847

Balance, December 30, 2023

89,760

$

89,760

$

1,713,881

$

3,564,195

$

(357,453)

$

5,010,383

    

    

    

    

    

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

See notes to consolidated financial statements.

5

AVNET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Six Months Ended

    

December 30,

    

December 31,

2023

2022

(Thousands)

Cash flows from operating activities:

Net income

$

327,199

$

428,147

Non-cash and other reconciling items:

Depreciation and amortization

 

42,727

 

43,705

Amortization of operating lease assets

26,205

26,414

Deferred income taxes

 

12,599

 

(15,581)

Stock-based compensation

 

19,951

 

21,338

Other, net

 

27,181

 

7,199

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

Receivables

 

287,320

 

(469,650)

Inventories

 

(610,008)

 

(686,884)

Accounts payable

 

(78,082)

 

(341,210)

Accrued expenses and other, net

 

(138,667)

 

20,021

Net cash flows used for operating activities

(83,575)

(966,501)

Cash flows from financing activities:

Borrowings under accounts receivable securitization, net

58,600

352,200

Borrowings under senior unsecured credit facility, net

272,747

1,132,245

Borrowings under bank credit facilities and other debt, net

30,752

47,712

Repurchases of common stock

(86,027)

(221,282)

Dividends paid on common stock

(56,138)

(53,304)

Other, net

2,665

(1,048)

Net cash flows provided by financing activities

222,599

1,256,523

Cash flows from investing activities:

Purchases of property, plant and equipment

(158,088)

(111,436)

Other, net

373

(16,279)

Net cash flows used for investing activities

(157,715)

(127,715)

Effect of currency exchange rate changes on cash and cash equivalents

3,311

8,778

Cash and cash equivalents:

— (decrease) increase

(15,380)

171,085

— at beginning of period

288,230

153,693

— at end of period

$

272,850

$

324,778

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 2023 balances to correspond to the fiscal 2024 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 1, 2023.

Recently adopted 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 assist financial statement users in understanding the effect of such programs on a company’s working capital, liquidity, and cash flows. The new guidance 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 Company adopted this guidance in the first quarter of fiscal 2024, except for the amendment on roll-forward information, which is effective for the Company in fiscal 2025. The Company’s adoption of ASU No. 2022-04 did not have a material impact on the Company’s consolidated financial statements.

Recently issued accounting pronouncements

In November 2023, the FASB issued ASU No. 2023-07, Segment reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU No. 2023-07”) which improves segment disclosure requirements, primarily through increased disclosures about significant segment expenses. ASU No. 2023-07 will be effective for the Company in fiscal year 2025, and interim periods beginning in fiscal year 2026 with early adoption permitted. The Company is currently evaluating the impact of adopting ASU No. 2023-07 on its consolidated financial statements and disclosures.

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Tax Disclosures (“ASU No. 2023-09”), which updates income tax disclosures related to the effective income tax rate reconciliation and requires disclosure of income taxes paid by jurisdiction. ASU No. 2023-09 also provides further disclosure comparability. ASU No. 2023-09 will be effective for the Company in fiscal year 2026 and early adoption is permitted. The Company is currently evaluating the impact of adopting ASU No. 2023-09 on its consolidated financial statements.

7

Table of Contents

AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

2. Working capital

Receivables

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

December 30,

July 1,

2023

2023

(Thousands)

Receivables

$

4,624,549

$

4,876,631

Allowance for Credit Losses

$

(115,807)

$

(112,843)

The Company had the following activity in the allowance for credit losses during the first six months of fiscal 2024 and fiscal 2023:

December 30,

December 31,

2023

2022

(Thousands)

Balance at beginning of the period

$

112,843

$

113,902

Credit Loss Provisions

6,564

4,803

Credit Loss Recoveries

(940)

(456)

Receivables Write Offs

(3,885)

(12,476)

Foreign Currency Effect and Other

1,225

732

Balance at end of the period

$

115,807

$

106,505

Inventories

The Company’s inventories are primarily comprised of electronic components purchased from the Company’s suppliers, which are available for sale to customers in the normal course of the Company’s electronic component distribution business. Classified within inventories are electronic components held for supply chain service engagements where the Company is acting as an agent on behalf of an Original Equipment Manufacturer or in some cases the component supplier. Components held for supply chain services where the Company is acting as an agent represented approximately 10% of inventories as of December 30, 2023, and approximately 8% of inventories as of July 1, 2023.

8

Table of Contents

AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

3. Goodwill

The following table presents the change in goodwill by reportable segment for the first six months ended December 30, 2023.

  

Electronic

  

  

Components

Farnell

Total

(Thousands)

Carrying value at July 1, 2023 (1)

$

296,829

$

483,800

$

780,629

Foreign currency translation

 

2,045

 

4,333

 

6,378

Carrying value at December 30, 2023 (1)

$

298,874

$

488,133

$

787,007

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

4. Debt

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

December 30,

July 1,

December 30,

July 1,

2023

   

2023

   

2023

   

2023

Interest Rate

Carrying Balance

 

Revolving credit facilities:

Accounts receivable securitization program (due December 2024)

6.20

%

$

614,400

$

Other short-term debt

5.63

%

5.08

%

81,929

70,636

Short-term debt

$

696,329

$

70,636

The Company has a 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 $700 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 $1.16 billion and $1.27 billion at December 30, 2023, and July 1, 2023, respectively. The Securitization Program contains certain covenants relating to the quality of the receivables sold.

Other short-term debt consists 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.

9

Table of Contents

AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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

December 30,

July 1,

December 30,

July 1,

2023

    

2023

  

2023

  

2023

Interest Rate

Carrying Balance

 

Revolving credit facilities:

Accounts receivable securitization program

5.99

%

$

$

555,800

Credit Facility

5.62

%

4.85

%

1,091,696

796,552

Other long-term debt

4.74

%

24,899

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

%

6.25

%

 

500,000

 

500,000

Long-term debt before discount and debt issuance costs

 

2,766,595

 

3,002,352

Discount and debt issuance costs – unamortized

 

(13,074)

 

(14,323)

Long-term debt

$

2,753,521

$

2,988,029

The Company has a 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 December 30, 2023, and July 1, 2023, there were $0.9 million 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 December 30, 2023, and July 1, 2023.

As of December 30, 2023, the carrying value and fair value of the Company’s total debt was $3.45 billion and $3.42 billion, respectively. At July 1, 2023, the carrying value and fair value of the Company’s total debt was $3.06 billion and $2.98 billion, respectively. Fair value for public notes was estimated based on 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 14 years. The Company’s equipment leases are primarily for automobiles and distribution center 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 30,

December 31,

December 30,

December 31,

2023

  

2022

  

2023

  

2022

Operating lease cost

$

14,166

$

16,917

$

29,705

$

33,482

Variable lease cost

8,677

5,715

15,844

12,028

Total lease cost

$

22,843

$

22,632

$

45,549

$

45,510

10

Table of Contents

AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Future minimum operating lease payments as of December 30, 2023, are as follows (in thousands):

Fiscal Year

Remainder of fiscal 2024

$

33,028

2025

57,085

2026

 

46,490

2027

 

28,901

2028

 

22,718

Thereafter

 

101,473

Total future operating lease payments

289,695

Total imputed interest on operating lease liabilities

(42,750)

Total operating lease liabilities

$

246,945

Other information pertaining to operating leases consists of the following:

Six Months Ended

December 30,

December 31,

2023

  

2022

Operating Lease Term and Discount Rate

Weighted-average remaining lease term in years

7.8

8.4

Weighted-average discount rate

3.8

%

3.8

%

Supplemental Cash Flow Information (in thousands)

Cash paid for operating lease liabilities

$

28,073

$

28,463

Operating lease assets obtained from new operating lease liabilities

$

30,399

$

29,640

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. This 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 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 using 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 fair value of forward foreign exchange contracts is based on Level 2 criteria under the ASC 820 fair value hierarchy. 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. 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

Table of Contents

AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

In fiscal 2023, the Company entered into a fixed-to-fixed rate cross currency swap (the “cross-currency swap”) with a notional amount of $500.0 million, or €472.6 million, that is set to mature in March 2028. The Company designated this derivative contract as a net investment hedge of its European operations and elected the spot method for measuring hedge effectiveness. Changes in fair value of the cross-currency swap is presented in “Accumulated other comprehensive loss” in the consolidated balance sheets. Amounts related to the cross-currency swap recognized directly in net income represent net periodic interest settlements and accruals, which are recognized in “Interest and other financing expenses, net,” on the consolidated statements of operations. The fair value of the cross-currency swaps is based on Level 2 criteria under the ASC 820 fair value hierarchy.

The Company uses these derivative financial instruments to manage risks associated with foreign currency exchange rates and interest rates. 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 locations and fair values of the Company’s derivative financial instruments in the Company’s consolidated balance sheets are as follows:

December 30,

    

July 1,

2023

2023

(Thousands)

Economic hedges

Prepaid and other current assets

$

58,127

$

69,104

Accrued expenses and other

$

59,424

$

68,594

Cross-currency swap

Other liabilities

$

35,240

$

22,849

The locations of derivative financial instruments on the Company’s consolidated statements of operations are as follows:

Second Quarters Ended

Six Months Ended

December 30,

  

December 31,

 

December 30,

  

December 31,

2023

2022

  

2023

2022

(Thousands)

Economic hedges

Other (expense) income, net

$

(18,631)

$

11,543

$

(20,733)

$

11,184

Cross currency swap

Interest and other financing expense, net

$

1,223

$

2,236

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 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.

12

Table of Contents

AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

As of December 30, 2023, and July 1, 2023, the Company had aggregate estimated liabilities of $22.7 million classified within accrued expenses and other for such compliance-related matters that were reasonably estimable as of such dates.

Gain on Legal Settlements and Other

During the first six months of fiscal 2024 and the first six months of fiscal 2023, the Company recorded a gain on legal settlements and other of $86.5 million and $61.7 million, respectively, in connection with the settlement of claims filed against certain manufacturers of capacitors.

8. Income taxes

The below discussion of the effective tax rate for the periods presented in the consolidated statements of operations is in comparison to the 21% U.S. statutory federal income tax rate.

The Company’s effective tax rate on its income before taxes was 23.2% in the second quarter of fiscal 2024. During the second quarter of fiscal 2024, the Company’s effective tax rate was unfavorably impacted primarily by (i) increases to unrecognized tax benefit reserves, (ii) U.S. state taxes, partially offset by (iii) the mix of income in lower tax foreign jurisdictions.

During the second quarter of fiscal 2023, the Company’s effective tax rate on its income before taxes was 19.5%. 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 foreign jurisdictions.

For the first six months of fiscal 2024, the Company’s effective tax rate on its income before taxes was 23.7%. The effective tax rate for the first six months of fiscal 2024 was unfavorably impacted primarily by (i) increases to unrecognized tax benefit reserves, (ii) U.S. state taxes, and (iii) the mix of income in higher tax foreign jurisdictions.

During 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 foreign jurisdictions, partially offset by (ii) decreases to unrecognized tax benefit reserves.

13

Table of Contents

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 30,

    

December 31,

  

December 30,

    

December 31,

2023

   

2022

  

2023

   

2022

(Thousands)

Service cost within selling, general and administrative expenses

$

2,563

$

3,004

$

5,126

$

6,008

Interest cost

 

6,144

 

6,683

 

12,289

 

13,365

Expected return on plan assets

 

(9,985)

 

(12,215)

 

(19,970)

 

(24,430)

Amortization of prior service cost

 

1

 

1

 

2

 

2

Recognized net actuarial loss

 

55

 

618

 

111

 

1,235

Total net periodic pension benefit within other (expense) income, net

(3,785)

(4,913)

(7,568)

(9,828)

Net periodic pension benefit

$

(1,222)

$

(1,909)

$

(2,442)

$

(3,820)

The Company made $4.0 million of contributions during the first six months of fiscal 2024 and expects to make additional contributions to the Plan of $4.0 million in the remainder of fiscal 2024.

10. Shareholders’ equity

Share repurchase program

During the second quarter of fiscal 2024, the Company repurchased 1.3 million shares under existing programs for a total cost of $59.9 million. As of December 30, 2023, the Company had $232.5 million remaining under its share repurchase authorization.

Common stock dividend

In November 2023, the Company’s Board of Directors approved a dividend of $0.31 per common share and dividend payments of $27.8 million were made in December 2023.

14

Table of Contents

AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

11. Earnings per share