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 April 2, 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 April 20, 2022, the total number of shares outstanding of the registrant’s Common Stock was 97,681,729 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 April 2, 2022 and July 3, 2021	2

Consolidated Statements of Operations for the third quarters and nine months ended April 2, 2022 and April 3, 2021	3

Consolidated Statements of Comprehensive Income for the third quarters and nine months ended April 2, 2022 and April 3, 2021	4

Consolidated Statements of Shareholders’ Equity for the third quarters and nine months ended April 2, 2022 and April 3, 2021	5

Consolidated Statements of Cash Flows for the nine months ended April 2, 2022 and April 3, 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	27

Item 4. Controls and Procedures	27

PART II. OTHER INFORMATION

Item 1. Legal Proceedings	28

Item 1A. Risk Factors	28

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)


	April 2,		July 3,
	2022		2021

	(Thousands, except share
	amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	199,457	$	199,691
Receivables		4,164,573		3,576,130
Inventories		3,680,821		3,236,837
Prepaid and other current assets		172,792		150,763
Total current assets		8,217,643		7,163,421
Property, plant and equipment, net		323,420		368,452
Goodwill		805,384		838,105
Intangible assets, net		15,975		28,539
Operating lease assets		245,149		265,988
Other assets		174,102		260,917
Total assets	$	9,781,673	$	8,925,422
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term debt	$	424,182	$	23,078
Accounts payable		2,968,845		2,401,357
Accrued expenses and other		616,079		572,457
Short-term operating lease liabilities		56,682		58,346
Total current liabilities		4,065,788		3,055,238
Long-term debt		922,041		1,191,329
Long-term operating lease liabilities		216,609		239,838
Other liabilities		320,515		354,833
Total liabilities		5,524,953		4,841,238
Commitments and contingencies (Note 7)
Shareholders’ equity:
Common stock $1.00 par; authorized 300,000,000 shares; issued 97,980,213 shares and 99,601,393 shares, respectively		97,980		99,601
Additional paid-in capital		1,644,715		1,622,160
Retained earnings		2,799,792		2,516,170
Accumulated other comprehensive loss		(285,767)		(153,747)
Total shareholders’ equity		4,256,720		4,084,184
Total liabilities and shareholders’ equity	$	9,781,673	$	8,925,422

See notes to consolidated financial statements.

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AVNET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Third Quarters Ended				Nine Months Ended
	April 2,		April 3,		April 2,		April 3,
	2022		2021		2022		2021

	(Thousands, except per share amounts)
Sales	$	6,488,143	$	4,916,714	$	17,938,055	$	14,307,945
Cost of sales		5,675,110		4,348,364		15,752,295		12,712,262
Gross profit		813,033		568,350		2,185,760		1,595,683
Selling, general and administrative expenses		512,364		463,092		1,499,904		1,376,333
Russian-Ukraine conflict related expenses (Note 2)		26,261		—		26,261		—
Restructuring, integration and other expenses		—		17,574		5,272		55,943
Operating income		274,408		87,684		654,323		163,407
Other (expense) income, net		(469)		4,779		858		(16,052)
Interest and other financing expenses, net		(25,914)		(22,342)		(70,388)		(66,128)
Income before taxes		248,025		70,121		584,793		81,227
Income tax expense (benefit)		64,608		(37,363)		139,237		(26,532)
Net income	$	183,417	$	107,484	$	445,556	$	107,759

Earnings per share:
Basic	$	1.86	$	1.08	$	4.50	$	1.09
Diluted	$	1.84	$	1.07	$	4.44	$	1.08

Shares used to compute earnings per share:
Basic		98,659		99,542		99,113		99,125
Diluted		99,486		100,247		100,296		100,013
Cash dividends paid per common share	$	0.26	$	0.21	$	0.74	$	0.63

See notes to consolidated financial statements.

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AVNET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Third Quarters Ended				Nine Months Ended
	April 2,		April 3,		April 2,		April 3,
	2022		2021		2022		2021

	(Thousands)
Net income	$	183,417	$	107,484	$	445,556	$	107,759
Other comprehensive income, net of tax:
Foreign currency translation and other		(66,033)		(65,021)		(144,052)		145,352
Pension adjustments, net		4,009		3,983		12,032		17,589
Total comprehensive income	$	121,393	$	46,446	$	313,536	$	270,700

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
Net income		—		—		—		183,417		—		183,417
Translation adjustments and other		—		—		—		—		(66,033)		(66,033)
Pension liability adjustments, net		—		—		—		—		4,009		4,009
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


									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
Net income		—		—		—		107,484		—		107,484
Translation adjustments and other		—		—		—		—		(65,021)		(65,021)
Pension liability adjustments, net		—		—		—		—		3,983		3,983
Cash dividends		—		—		—		(20,888)		—		(20,888)
Stock-based compensation		627		627		969		—		—		1,596
Balance, April 3, 2021		99,489	$	99,489	$	1,611,114	$	2,452,723	$	(225,439)	$	3,937,887

See notes to consolidated financial statements.

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AVNET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine Months Ended
	April 2,		April 3,
	2022		2021

	(Thousands)
Cash flows from operating activities:
Net income	$	445,556	$	107,759

Non-cash and other reconciling items:
Depreciation		65,719		67,462
Amortization		12,034		35,730
Amortization of operating lease assets		40,298		42,054
Deferred income taxes		1,423		11,510
Stock-based compensation		28,638		22,293
Impairments		—		15,166
Other, net		47,667		7,558
Changes in (net of effects from businesses acquired and divested):
Receivables		(880,957)		(405,700)
Inventories		(549,999)		63,017
Accounts payable		628,822		224,151
Accrued expenses and other, net		141,381		6,526
Net cash flows (used) provided by operating activities		(19,418)		197,526

Cash flows from financing activities:
Borrowings under accounts receivable securitization, net		57,400		—
Repayments under senior unsecured credit facility, net		—		(232,347)
Borrowings (repayments) under bank credit facilities and other debt, net		117,982		(2,192)
Repurchases of common stock		(88,952)		—
Dividends paid on common stock		(73,253)		(62,400)
Other, net		(16,853)		(11,455)
Net cash flows used for financing activities		(3,676)		(308,394)

Cash flows from investing activities:
Purchases of property, plant and equipment		(33,679)		(39,001)
Acquisitions of assets and businesses		—		(18,371)
Proceeds from liquidation of Company owned life insurance policies		84,343		—
Other, net		724		6,201
Net cash flows provided (used) for investing activities		51,388		(51,171)

Effect of currency exchange rate changes on cash and cash equivalents		(28,528)		7,750

Cash and cash equivalents:
— decrease		(234)		(154,289)
— at beginning of period		199,691		477,038
— at end of period	$	199,457	$	322,749

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 nine months of fiscal 2022, contained 39 weeks compared to the first nine months of fiscal 2021, which contained 40 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 plans to adopt ASU 2020-04 and ASU 2021-01 when LIBOR is discontinued and 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 and Russian-Ukraine conflict related expenses

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


	April 2,		July 3,
	2022		2021

	(Thousands)
Receivables	$	4,279,564	$	3,664,290
Allowance for Credit Losses		(114,991)		(88,160)

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


	April 2,		April 3,
	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		21,746		7,370
Russian-Ukraine conflict Credit Loss Provisions		17,202		—
Credit Loss Recoveries		(300)		(192)
Receivables Write offs		(9,194)		(5,666)
Foreign Currency Effect and Other		(2,623)		2,054
Balance at end of the period	$	114,991	$	85,789

As a direct and incremental impact associated with the Russian invasion of Ukraine, 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 are 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 2, 2022.


	Electronic
	Components		Farnell		Total

	(Thousands)
Carrying value at July 3, 2021 ⁽¹⁾	$	310,582	$	527,523	$	838,105
Foreign currency translation		(9,057)		(23,664)		(32,721)
Carrying value at April 2, 2022 ⁽¹⁾	$	301,525	$	503,859	$	805,384

(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 April 2, 2022 and July 3, 2021, respectively.


	April 2, 2022						July 3, 2021
	Acquired		Accumulated		Net Book		Acquired		Accumulated		Net Book
	Amount		Amortization		Value		Amount⁽¹⁾		Amortization		Value

	(Thousands)
Customer related	$	311,226	$	(301,348)	$	9,878	$	324,416	$	(312,392)	$	12,024
Trade name		54,569		(49,486)		5,083		57,184		(45,019)		12,165
Technology and other		55,120		(54,106)		1,014		57,809		(53,459)		4,350
	$	420,915	$	(404,940)	$	15,975	$	439,409	$	(410,870)	$	28,539

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

Intangible asset amortization expense was $3.1 million and $5.3 million for the third quarters of fiscal 2022 and 2021, respectively, and $12.0 million and $35.7 million for the first nine 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	$	3,059
2023		6,428
2024		3,176
2025		1,472
2026		1,472
2027		368
Total	$	15,975

4. Debt

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


	April 2,		July 3,		April 2,		July 3,
	2022		2021		2022		2021

	Interest Rate				Carrying Balance
Other short-term debt and accounts receivable securitization program	0.99	%	1.24	%	$	74,182	$	23,078
Public notes due December 2022	4.88	%	—			350,000		—
Short-term debt					$	424,182	$	23,078

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 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):


	April 2,		July 3,		April 2,		July 3,
	2022		2021		2022		2021

	Interest Rate				Carrying Balance
Revolving credit facilities:
Accounts receivable securitization program	1.19	%	—		$	80,300	$	—
Credit Facility (due June 2023)	—		—			—		—
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	%		157		1,185
Long-term debt before discount and debt issuance costs						930,457		1,201,185
Discount and debt issuance costs – unamortized						(8,416)		(9,856)
Long-term debt					$	922,041	$	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 $1.09 billion and $717.4 million at April 2, 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 April 2, 2022, and July 3, 2021.

As of April 2, 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 April 2, 2022, the carrying value and fair value of the Company’s total debt was $1.35 billion and $1.35 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):


	Third Quarters Ended				Nine Months Ended
	April 2,		April 3,		April 2,		April 3,
	2022		2021		2022		2021
Operating lease cost	$	17,220	$	18,608	$	52,196	$	55,105
Variable lease cost