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 January 1, 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 19, 2022, the total number of shares outstanding of the registrant’s Common Stock was 98,963,138 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 January 1, 2022 and July 3, 2021	2

Consolidated Statements of Operations for the second quarters and six months ended January 1, 2022 and January 2, 2021	3

Consolidated Statements of Comprehensive Income for the second quarters and six months ended January 1, 2022 and January 2, 2021	4

Consolidated Statements of Shareholders’ Equity for the second quarters and six months ended January 1, 2022 and January 2, 2021	5

Consolidated Statements of Cash Flows for the six months ended January 1, 2022 and January 2, 2021	6

Notes to Consolidated Financial Statements	7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	18

Item 3. Quantitative and Qualitative Disclosures About Market Risk	26

Item 4. Controls and Procedures	27

PART II. OTHER INFORMATION

Item 1. Legal Proceedings	27

Item 1A. Risk Factors	27

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	28

Item 6. Exhibits	29

Signature Page	30

Table of Contents

PART I

FINANCIAL INFORMATION

Item 1.

Financial Statements

AVNET, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)


	January 1,		July 3,
	2022		2021

	(Thousands, except share
	amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	167,818	$	199,691
Receivables		4,077,707		3,576,130
Inventories		3,542,723		3,236,837
Prepaid and other current assets		155,963		150,763
Total current assets		7,944,211		7,163,421
Property, plant and equipment, net		338,199		368,452
Goodwill		823,728		838,105
Intangible assets, net		19,271		28,539
Operating lease assets		248,020		265,988
Other assets		207,441		260,917
Total assets	$	9,580,870	$	8,925,422
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term debt	$	350,000	$	23,078
Accounts payable		2,693,696		2,401,357
Accrued expenses and other		588,581		572,457
Short-term operating lease liabilities		56,228		58,346
Total current liabilities		3,688,505		3,055,238
Long-term debt		1,144,592		1,191,329
Long-term operating lease liabilities		221,294		239,838
Other liabilities		323,253		354,833
Total liabilities		5,377,644		4,841,238
Commitments and contingencies (Note 7)
Shareholders’ equity:
Common stock $1.00 par; authorized 300,000,000 shares; issued 98,430,306 shares and 99,601,393 shares, respectively		98,430		99,601
Additional paid-in capital		1,642,521		1,622,160
Retained earnings		2,686,018		2,516,170
Accumulated other comprehensive loss		(223,743)		(153,747)
Total shareholders’ equity		4,203,226		4,084,184
Total liabilities and shareholders’ equity	$	9,580,870	$	8,925,422

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
	January 1,		January 2,		January 1,		January 2,
	2022		2021		2022		2021

	(Thousands, except per share amounts)
Sales	$	5,865,217	$	4,668,172	$	11,449,912	$	9,391,232
Cost of sales		5,152,182		4,156,919		10,077,185		8,363,899
Gross profit		713,035		511,253		1,372,727		1,027,333
Selling, general and administrative expenses		501,363		442,084		987,540		913,241
Restructuring, integration and other expenses		—		11,948		5,272		38,369
Operating income		211,672		57,221		379,915		75,723
Other income (expense), net		1,737		(1,333)		1,327		(20,831)
Interest and other financing expenses, net		(21,630)		(21,485)		(44,474)		(43,787)
Income before taxes		191,779		34,403		336,768		11,105
Income tax expense		40,958		15,240		74,629		10,831
Net income	$	150,821	$	19,163	$	262,139	$	274

Earnings per share:
Basic	$	1.52	$	0.19	$	2.64	$	0.00
Diluted	$	1.50	$	0.19	$	2.60	$	0.00

Shares used to compute earnings per share:
Basic		99,032		98,937		99,340		98,917
Diluted		100,286		99,932		100,701		99,897
Cash dividends paid per common share	$	0.24	$	0.21	$	0.48	$	0.42

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
	January 1,		January 2,		January 1,		January 2,
	2022		2021		2022		2021

	(Thousands)
Net income	$	150,821	$	19,163	$	262,139	$	274
Other comprehensive income, net of tax:
Foreign currency translation and other		(48,982)		120,000		(78,018)		210,373
Pension adjustments, net		4,010		3,983		8,022		13,606
Total comprehensive income	$	105,849	$	143,146	$	192,143	$	224,253

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 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


									Accumulated
	Common		Common		Additional				Other		Total
	Stock-		Stock-		Paid-In		Retained		Comprehensive		Shareholders’
	Shares		Amount		Capital		Earnings		(Loss) Income		Equity

	(Thousands)
Balance, June 27, 2020		98,793	$	98,793	$	1,594,140	$	2,421,845	$	(388,380)	$	3,726,398
Net loss		—		—		—		(18,889)		—		(18,889)
Translation adjustments and other		—		—		—		—		90,373		90,373
Pension liability adjustments, net		—		—		—		—		9,623		9,623
Cash dividends		—		—		—		(20,756)		—		(20,756)
Effects of new accounting principles, net		—		—		—		(14,480)		—		(14,480)
Stock-based compensation		51		51		5,191		—		—		5,242
Balance, October 3, 2020		98,844		98,844		1,599,331		2,367,720		(288,384)		3,777,511
Net income		—		—		—		19,163		—		19,163
Translation adjustments and other		—		—		—		—		120,000		120,000
Pension liability adjustments, net		—		—		—		—		3,983		3,983
Cash dividends		—		—		—		(20,756)		—		(20,756)
Stock-based compensation		18		18		10,814		—		—		10,832
Balance, January 2, 2021		98,862	$	98,862	$	1,610,145	$	2,366,127	$	(164,401)	$	3,910,733

See notes to consolidated financial statements.

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AVNET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six Months Ended
	January 1,		January 2,
	2022		2021

	(Thousands)
Cash flows from operating activities:
Net income	$	262,139	$	274

Non-cash and other reconciling items:
Depreciation		43,876		44,002
Amortization		8,964		30,474
Amortization of operating lease assets		27,426		28,111
Deferred income taxes		(4,451)		(311)
Stock-based compensation		19,556		15,331
Impairments		—		15,166
Other, net		10,281		17,004
Changes in (net of effects from businesses acquired and divested):
Receivables		(558,702)		(94,831)
Inventories		(359,755)		51,185
Accounts payable		328,574		130,768
Accrued expenses and other, net		(41,117)		(29,779)
Net cash flows (used) provided by operating activities		(263,209)		207,394

Cash flows from financing activities:
Borrowings under accounts receivable securitization, net		190,400		11,800
Borrowings (repayments) under senior unsecured credit facility, net		109,669		(239,430)
Repayments under bank credit facilities and other debt, net		(1,550)		(1,480)
Repurchases of common stock		(45,570)		—
Dividends paid on common stock		(47,642)		(41,512)
Other, net		(6,069)		(2,301)
Net cash flows provided (used) for financing activities		199,238		(272,923)

Cash flows from investing activities:
Purchases of property, plant and equipment		(22,116)		(30,022)
Acquisitions of assets and businesses		—		(18,371)
Other, net		68,270		725
Net cash flows provided (used) for investing activities		46,154		(47,668)

Effect of currency exchange rate changes on cash and cash equivalents		(14,056)		12,492

Cash and cash equivalents:
— decrease		(31,873)		(100,705)
— at beginning of period		199,691		477,038
— at end of period	$	167,818	$	376,333

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.

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

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

Fiscal year

The Company operates on a “52/53 week” fiscal year, and fiscal 2022 contains 52 weeks compared to fiscal 2021, which contained 53 weeks. As a result, the first six months of fiscal 2022, contained 26 weeks compared to the first six months of fiscal 2021, which contained 27 weeks.

Recently adopted accounting pronouncements

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

Recently issued accounting pronouncements

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

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AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

2. Receivables

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


	January 1,		July 3,
	2022		2021

	(Thousands)
Receivables	$	4,167,281	$	3,664,290
Allowance for Credit Losses		(89,574)		(88,160)

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


	January 1,		January 2,
	2022		2021

	(Thousands)
Balance at beginning of the period	$	88,160	$	65,018
Effect of adopting credit loss accounting standard		—		17,205
Credit Loss Provisions		8,391		4,438
Credit Loss Recoveries		(321)		(283)
Receivables Write offs		(4,930)		(4,621)
Foreign Currency Effect and Other		(1,726)		3,693
Balance at end of the period	$	89,574	$	85,450

3. Goodwill and intangible assets

Goodwill

The following table presents the change in goodwill by reportable segment for the six months ended January 1, 2022.


	Electronic
	Components		Farnell		Total

	(Thousands)
Carrying value at July 3, 2021 ⁽¹⁾	$	310,582	$	527,523	$	838,105
Foreign currency translation		(4,980)		(9,397)		(14,377)
Carrying value at January 1, 2022 ⁽¹⁾	$	305,602	$	518,126	$	823,728

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

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AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Intangible Assets

The following table presents the Company’s acquired intangible assets at January 1, 2022 and July 3, 2021, respectively.


	January 1, 2022						July 3, 2021
	Acquired		Accumulated		Net Book		Acquired		Accumulated		Net Book
	Amount		Amortization		Value		Amount⁽¹⁾		Amortization		Value

	(Thousands)
Customer related	$	318,723	$	(308,131)	$	10,592	$	324,416	$	(312,392)	$	12,024
Trade name		56,103		(48,635)		7,468		57,184		(45,019)		12,165
Technology and other		56,510		(55,299)		1,211		57,809		(53,459)		4,350
	$	431,336	$	(412,065)	$	19,271	$	439,409	$	(410,870)	$	28,539

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

Intangible asset amortization expense was $3.8 million and $10.4 million for the second quarters of fiscal 2022 and 2021, respectively, and $9.0 million and $30.5 million for the first six months of fiscal 2022 and 2021, respectively.

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


Fiscal Year
Remainder of fiscal 2022	$	6,250
2023		6,525
2024		3,184
2025		1,472
2026		1,472
2027		368
Total	$	19,271

4. Debt

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


	January 1,		July 3,		January 1,		July 3,
	2022		2021		2022		2021

	Interest Rate				Carrying Balance
Bank credit facilities and other	—		1.24	%	$	—	$	23,078
Public notes due December 2022	4.88	%	—			350,000		—
Short-term debt					$	350,000	$	23,078

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

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AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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


	January 1,		July 3,		January 1,		July 3,
	2022		2021		2022		2021

	Interest Rate				Carrying Balance
Revolving credit facilities:
Accounts receivable securitization program	0.85	%	—		$	213,300	$	—
Credit Facility (due June 2023)	1.27	%	—			90,006		—
Public notes due:
December 2022	—		4.88	%		—		350,000
April 2026	4.63	%	4.63	%		550,000		550,000
May 2031	3.00	%	3.00	%		300,000		300,000
Other long-term debt	0.00	%	1.22	%		161		1,185
Long-term debt before discount and debt issuance costs						1,153,467		1,201,185
Discount and debt issuance costs – unamortized						(8,875)		(9,856)
Long-term debt					$	1,144,592	$	1,191,329

In August 2021, the Company amended and extended for two years its trade accounts receivable securitization program (the “Securitization Program”) in the United States with a group of financial institutions. The Securitization Program allows the Company to transfer, on an ongoing revolving basis, an undivided interest in a designated pool of trade accounts receivable, to provide security or collateral for borrowings of up to a maximum of $450 million. The Securitization Program does not qualify for off balance sheet accounting treatment and any borrowings under the Securitization Program are recorded as debt in the consolidated balance sheets. Under the Securitization Program, the Company legally sells and isolates certain U.S. trade accounts receivable into a wholly owned and consolidated bankruptcy remote special purpose entity. Such receivables, which are recorded within “Receivables” in the consolidated balance sheets, totaled $915.6 million and $717.4 million at January 1, 2022, and July 3, 2021, respectively. The Securitization Program contains certain covenants relating to the quality of the receivables sold. Interest on borrowings is calculated using a one-month LIBOR rate plus a spread of 0.75%. The facility fee on the unused balance of the facility is up to 0.35%.

The Company has a five-year $1.25 billion revolving credit facility (the “Credit Facility”) with a syndicate of banks, which expires in June 2023. It consists of revolving credit facilities and the issuance of up to $200.0 million of letters of credit and up to $300.0 million of loans in certain approved currencies. Subject to certain conditions, the Credit Facility may be increased up to $1.50 billion. Under the Credit Facility, the Company may select from various interest rate options, currencies, and maturities. The Credit Facility contains certain covenants including various limitations on debt incurrence, share repurchases, dividends, investments, and capital expenditures. The Credit Facility also includes financial covenants requiring the Company to maintain minimum interest coverage and leverage ratios, which the Company was in compliance with as of January 1, 2022, and July 3, 2021.

As of January 1, 2022, and July 3, 2021, there were $1.2 million and $1.3 million, respectively, in letters of credit issued under the Credit Facility.

As of January 1, 2022, the carrying value and fair value of the Company’s total debt was $1.49 billion and $1.56 billion, respectively. At July 3, 2021, the carrying value and fair value of the Company’s total debt was $1.21 billion and $1.30 billion, respectively. Fair value for the public notes was estimated based upon quoted market prices and, for other forms of debt, fair value approximates carrying value due to the market based variable nature of the interest rates on those debt facilities.

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AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

5. Leases

Substantially all the Company’s leases are classified as operating leases and are predominately related to real property for distribution centers, office space, and integration facilities with a lease term of up to 16 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
	January 1,		January 2,		January 1,		January 2,
	2022		2021		2022		2021
Operating lease cost	$	17,129	$	18,095	$	34,975	$	36,497
Variable lease cost		6,733		5,423		12,851		11,711
Total lease cost	$	23,862	$	23,518	$	47,826	$	48,208

Future minimum operating lease payments as of January 1, 2022, are as follows (in thousands):


Fiscal Year
Remainder of fiscal 2022	$	34,027
2023		59,916
2024		43,094
2025		33,862
2026		28,943
Thereafter		133,754
Total future operating lease payments		333,596
Total imputed interest on operating lease liabilities		(56,074)
Total operating lease liabilities	$	277,522

Other information pertaining to operating leases consists of the following:


	Six Months Ended
	January 1,		January 2,
	2022		2021
Operating Lease Term and Discount Rate
Weighted-average remaining lease term in years	8.9		9.3
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
	January 1,		January 2,
	2022		2021
Supplemental Cash Flow Information:
Cash paid for operating lease liabilities	$	29,456	$	29,157
Operating lease assets obtained from new operating lease liabilities		13,478		28,346

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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 expense, net.” The fair value of forward foreign exchange contracts, which are based upon Level 2 criteria under the ASC 820 fair value hierarchy, are classified in the captions “Prepaid and other current assets” or “Accrued expenses and other,” as applicable, in the accompanying consolidated balance sheets as of January 1, 2022, and July 3, 2021. The Company’s master netting and other similar arrangements with various financial institutions related to derivative financial instruments allow for the right of offset. The Company’s policy is to present derivative financial instruments with the same counterparty as either a net asset or liability when the right of offset exists.

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

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

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


	January 1,		July 3,
	2022		2021

	(Thousands)
Prepaid and other current assets	$	14,532	$	15,722
Accrued expenses and other		12,686		23,994

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


	Second Quarters Ended				Six Months Ended
	January 1,		January 2,		January 1,		January 2,
	2022		2021		2022		2021

	(Thousands)
Net derivative financial instrument loss	$	(7,012)	$	(2,810)	$	(15,783)	$	(10,627)

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.

Table of Contents

AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

7. Commitments and contingencies