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 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.

Table of Contents

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

Table of Contents

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.

Table of Contents

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.

Table of Contents

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.

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AVNET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)


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

	(Thousands)
Balance, July 2, 2022		95,702	$	95,702	$	1,656,907	$	2,921,399	$	(481,248)	$	4,192,760
Net income		—		—		—		184,261		—		184,261
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.

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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.

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AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. Basis of presentation and new accounting pronouncements

In the opinion of management, the accompanying unaudited interim consolidated financial statements contain all adjustments necessary to present fairly Avnet, Inc. and its consolidated subsidiaries’ (collectively, the “Company” or “Avnet”) financial position, results of operations, comprehensive income, and cash flows. All such adjustments are of a normal recurring nature. Certain reclassifications have been made to fiscal 2022 balances to correspond to the fiscal 2023 consolidated financial statement presentation.

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

Interim results of operations do not necessarily indicate the results to be expected for the full fiscal year. The information included in this Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended July 2, 2022.

Recently adopted accounting pronouncements

In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU No. 2021-08”), which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with Topic 606 as if it had originated the contracts. The Company’s early adoption of ASU 2021-08 at the beginning of fiscal year 2023 did not have an impact on the Company’s Consolidated Financial Statements as the Company did not have any business combinations in the first 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)

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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.

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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.

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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

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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		25,897