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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 September 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 October 28, 2023, the total number of shares outstanding of the registrant’s Common Stock was 90,485,363 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 September 30, 2023 and July 1, 2023

2

Consolidated Statements of Operations for the first quarters ended September 30, 2023 and October 1, 2022

3

Consolidated Statements of Comprehensive Income for the first quarters ended September 30, 2023 and October 1, 2022

4

Consolidated Statements of Shareholders’ Equity for the first quarters ended September 30, 2023 and October 1, 2022

5

Consolidated Statements of Cash Flows for the first quarters ended September 30, 2023 and October 1, 2022

6

Notes to Consolidated Financial Statements

7

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

16

Item 3. Quantitative and Qualitative Disclosures About Market Risk

22

Item 4. Controls and Procedures

22

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

23

Item 1A. Risk Factors

23

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

23

Item 6. Exhibits

24

Signature Page

25

1

PART I

FINANCIAL INFORMATION

Item 1.

Financial Statements

AVNET, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

    

September 30,

    

July 1,

 

2023

2023

 

(Thousands, except share

 

amounts)

 

ASSETS

Current assets:

Cash and cash equivalents

$

278,679

$

288,230

Receivables

 

4,679,691

 

4,763,788

Inventories

 

5,755,051

 

5,465,031

Prepaid and other current assets

 

197,720

 

233,804

Total current assets

 

10,911,141

 

10,750,853

Property, plant and equipment, net

 

470,971

 

441,557

Goodwill

 

759,848

 

780,629

Operating lease assets

220,657

221,698

Other assets

 

283,845

 

282,422

Total assets

$

12,646,462

$

12,477,159

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Short-term debt

$

68,601

$

70,636

Accounts payable

 

3,445,711

 

3,373,820

Accrued expenses and other

722,409

753,130

Short-term operating lease liabilities

 

53,657

 

51,792

Total current liabilities

 

4,290,378

 

4,249,378

Long-term debt

 

3,101,903

 

2,988,029

Long-term operating lease liabilities

186,745

190,621

Other liabilities

 

244,853

 

297,462

Total liabilities

 

7,823,879

 

7,725,490

Commitments and contingencies (Note 7)

Shareholders’ equity:

Common stock $1.00 par; authorized 300,000,000 shares; issued 90,983,772 shares and 91,504,053 shares, respectively

 

90,984

 

91,504

Additional paid-in capital

 

1,702,065

 

1,691,334

Retained earnings

 

3,532,676

 

3,378,212

Accumulated other comprehensive loss

 

(503,142)

 

(409,381)

Total shareholders’ equity

 

4,822,583

 

4,751,669

Total liabilities and shareholders’ equity

$

12,646,462

$

12,477,159

See notes to consolidated financial statements.

2

AVNET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

First Quarters Ended

    

September 30,

    

October 1,

2023

2022

(Thousands, except per share amounts)

Sales

$

6,335,648

$

6,750,133

Cost of sales

 

5,587,542

 

5,981,960

Gross profit

 

748,106

 

768,173

Selling, general and administrative expenses

 

487,286

 

477,636

Restructuring, integration and other expenses

 

7,051

 

Operating income

 

253,769

 

290,537

Other income, net

 

5,960

 

323

Interest and other financing expenses, net

 

(70,796)

 

(45,098)

Gain on legal settlements and other

86,499

Income before taxes

 

275,432

 

245,762

Income tax expense

 

66,164

 

61,501

Net income

$

209,268

$

184,261

Earnings per share:

Basic

$

2.29

$

1.96

Diluted

$

2.25

$

1.93

Shares used to compute earnings per share:

Basic

 

91,495

 

94,051

Diluted

 

93,178

 

95,636

Cash dividends paid per common share

$

0.31

$

0.29

See notes to consolidated financial statements.

3

AVNET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

First Quarters Ended

    

September 30,

    

October 1,

2023

2022

(Thousands)

Net income

$

209,268

$

184,261

Other comprehensive income (loss), net of tax:

Foreign currency translation and other

 

(107,036)

 

(201,663)

Cross-currency swap

11,808

Pension adjustments, net

 

1,467

 

9,866

Total other comprehensive loss, net of tax

(93,761)

(191,797)

Total comprehensive income (loss), net of tax

$

115,507

$

(7,536)

See notes to consolidated financial statements.

4

AVNET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)

    

    

    

    

    

Accumulated

    

Common

Common

Additional

Other

Total

Stock-

Stock-

Paid-In

Retained

Comprehensive

Shareholders’

Shares

Amount

Capital

Earnings

(Loss) Income

Equity

(Thousands)

Balance, July 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

    

    

    

    

    

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

See notes to consolidated financial statements.

5

AVNET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

First Quarters Ended

    

September 30,

    

October 1,

2023

2022

(Thousands)

Cash flows from operating activities:

Net income

$

209,268

$

184,261

Non-cash and other reconciling items:

Depreciation

 

20,639

 

19,640

Amortization

 

878

 

2,755

Amortization of operating lease assets

13,271

13,141

Deferred income taxes

 

5,575

 

(7,296)

Stock-based compensation

 

9,355

 

8,924

Other, net

 

(20,171)

 

8,224

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

Receivables

 

30,190

 

(419,852)

Inventories

 

(371,604)

 

(559,044)

Accounts payable

 

111,489

 

120,938

Accrued expenses and other, net

 

(50,184)

 

(16,840)

Net cash flows used for operating activities

 

(41,294)

 

(645,149)

Cash flows from financing activities:

Borrowings (repayments) under accounts receivable securitization, net

 

(92,100)

 

152,200

Borrowings under senior unsecured credit facility, net

243,613

 

701,987

Repayments under bank credit facilities and other debt, net

 

(133)

 

(85,432)

Repurchases of common stock

 

(24,324)

 

(152,408)

Dividends paid on common stock

 

(28,320)

 

(26,998)

Other, net

 

1,414

 

(964)

Net cash flows provided by financing activities

 

100,150

 

588,385

Cash flows from investing activities:

Purchases of property, plant and equipment

 

(76,089)

 

(28,208)

Other, net

 

300

 

7,303

Net cash flows used for investing activities

 

(75,789)

 

(20,905)

Effect of currency exchange rate changes on cash and cash equivalents

 

7,382

 

4,857

Cash and cash equivalents:

— decrease

(9,551)

(72,812)

— at beginning of period

288,230

153,693

— at end of period

$

278,679

$

80,881

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.

2. Receivables

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

September 30,

July 1,

2023

2023

(Thousands)

Receivables

$

4,793,180

$

4,876,631

Allowance for Credit Losses

$

(113,489)

$

(112,843)

7

Table of Contents

AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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

September 30,

October 1,

2023

2022

(Thousands)

Balance at beginning of the period

$

112,843

$

113,902

Credit Loss Provisions

4,157

1,442

Credit Loss Recoveries

(364)

(216)

Receivables Write Offs

(959)

(3,378)

Foreign Currency Effect and Other

(2,188)

(5,127)

Balance at end of the period

$

113,489

$

106,623

3. Goodwill

The following table presents the change in goodwill by reportable segment for the first quarter ended September 30, 2023.

  

Electronic

  

  

Components

Farnell

Total

(Thousands)

Carrying value at July 1, 2023 (1)

$

296,829

$

483,800

$

780,629

Foreign currency translation

 

(4,748)

 

(16,033)

 

(20,781)

Carrying value at September 30, 2023 (1)

$

292,081

$

467,767

$

759,848

(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):

September 30,

July 1,

September 30,

July 1,

2023

   

2023

   

2023

   

2023

Interest Rate

Carrying Balance

 

Other short-term debt

5.59

%

5.08

%

$

68,601

$

70,636

Short-term debt

$

68,601

$

70,636

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.

8

Table of Contents

AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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

September 30,

July 1,

September 30,

July 1,

2023

    

2023

  

2023

  

2023

Interest Rate

Carrying Balance

 

Revolving credit facilities:

Accounts receivable securitization program (due December 2024)

6.17

%

5.99

%

$

463,700

$

555,800

Credit Facility (due August 2027)

5.48

%

4.85

%

1,002,024

796,552

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

 

3,115,724

 

3,002,352

Discount and debt issuance costs – unamortized

 

(13,821)

 

(14,323)

Long-term debt

$

3,101,903

$

2,988,029

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 $1.31 billion and $1.27 billion at September 30, 2023, and July 1, 2023, respectively. The Securitization Program contains certain covenants relating to the quality of the receivables sold.

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 September 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 September 30, 2023, and July 1, 2023.

As of September 30, 2023, the carrying value and fair value of the Company’s total debt was $3.17 billion and $3.05 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 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).

9

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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 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):

First Quarters Ended

September 30,

October 1,

2023

  

2022

Operating lease cost

$

15,539

$

16,566

Variable lease cost

7,167

6,313

Total lease cost

$

22,706

$

22,879

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

Fiscal Year

Remainder of fiscal 2024

$

46,377

2025

52,620

2026

 

41,715

2027

 

25,110

2028

 

19,758

Thereafter

 

97,740

Total future operating lease payments

283,320

Total imputed interest on operating lease liabilities

(42,918)

Total operating lease liabilities

$

240,402

Other information pertaining to operating leases consists of the following:

First Quarters Ended

September 30,

October 1,

2023

  

2022

Operating Lease Term and Discount Rate

Weighted-average remaining lease term in years

8.0

8.5

Weighted-average discount rate

3.8

%

3.9

%

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

First Quarters Ended

September 30,

October 1,

2023

  

2022

Supplemental Cash Flow Information:

Cash paid for operating lease liabilities

$

13,856

$

14,062

Operating lease assets obtained from new operating lease liabilities

$

15,132

$

20,796

10

Table of Contents

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. 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 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 fair value of forward foreign exchange contracts is based upon 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.

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 income” 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 are based upon 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:

September 30,

    

July 1,

2023

2023

(Thousands)

Economic hedges

Prepaid and other current assets

$

17,171

$

69,104

Accrued expenses and other

$

37,890

$

68,594

Cross-currency swap

Other liabilities

$

11,041

$

22,849

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Table of Contents

AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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

First Quarters Ended

September 30,

  

October 1,

2023

2022

(Thousands)

Economic hedges

Other income, net

$

(2,103)

$

(359)

Cross currency swap

Interest and other financing expense, net

$

1,013

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 to 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.

As of September 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 quarter of fiscal 2024, the Company recorded a gain on legal settlements and other of $86.5 million in connection with a settlement of a claim filed against a manufacturer of capacitor.

8. Income taxes

The below discussion of the effective tax rate for the periods presented in the 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 24.0% in the first quarter of fiscal 2024. During the first quarter of fiscal 2024, the Company’s effective tax rate was unfavorably impacted primarily by (i) increases to unrecognized tax benefit reserves net of settlements, (ii) U.S. state taxes, and (iii) the mix of income in higher tax jurisdictions.

During the first quarter of fiscal 2023, the Company’s effective tax rate on its income before taxes was 25.0%. During the first quarter of fiscal 2023, the Company’s effective tax rate was unfavorably impacted primarily by (i) increases to unrecognized tax benefit reserves and (ii) the mix of income in higher tax jurisdictions.

12

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:

First Quarters Ended

  

September 30,

    

October 1,

2023

   

2022

(Thousands)

Service cost within selling, general and administrative expenses

$

2,563

$

3,004

Interest cost

 

6,145

 

6,682

Expected return on plan assets

 

(9,985)

 

(12,215)

Amortization of prior service cost

 

1

 

1

Recognized net actuarial loss

 

56

 

617

Total net periodic pension benefit within other income, net

(3,783)

(4,915)

Net periodic pension benefit

$

(1,220)

$

(1,911)

The Company made $4.0 million of contributions during the first quarter 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 first quarter of fiscal 2024, the Company repurchased 0.6 million shares under existing programs for a total cost of $27.0 million. As of September 30, 2023, the Company had $291.5 million remaining under its share repurchase authorization.

Common stock dividend

In August 2023, the Company’s Board of Directors approved a dividend of $0.31 per common share and dividend payments of $28.3 million were made in September 2023.

13

Table of Contents

AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

11. Earnings per share

First Quarters Ended

 

September 30,

October 1,

2023

  

2022

(Thousands, except per share data)

Numerator:

   

Net income

$

209,268

$

184,261

Denominator:

Weighted average common shares for basic earnings per share

 

91,495

 

94,051

Net effect of dilutive stock-based compensation awards

 

1,683

 

1,585

Weighted average common shares for diluted earnings per share

 

93,178

 

95,636

Basic earnings per share

$

2.29

$

1.96

Diluted earnings per share

$

2.25

$

1.93

Stock options excluded from earnings per share calculation due to an anti-dilutive effect

122

146

12. Additional cash flow information

Non-cash investing and financing activities and supplemental cash flow information were as follows:

First Quarters Ended

    

September 30,

    

October 1,

2023

2022

(Thousands)

Non-cash Investing Activities:

Capital expenditures incurred but not paid

$

13,967

$

11,916

Non-cash Financing Activities:

Unsettled share repurchases

$

2,718

$

4,449

Supplemental Cash Flow Information:

Interest

$

81,446

$

32,855

Income tax payments, net

$

78,357

$

57,426

Included in cash and cash equivalents as of September 30, 2023, and July 1, 2023, was $11.4 million and $3.7 million, respectively, of cash equivalents, which was primarily comprised of investment grade money market funds and overnight time deposits.

14

Table of Contents

AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

13. Segment information

Electronic Components (“EC”) and Farnell (“Farnell”) are the Company’s reportable segments (“operating groups”).

First Quarters Ended

September 30,

October 1,

2023

    

2022

 

(Thousands)

Sales:

    

    

    

    

Electronic Components

$

5,914,405

$

6,324,223

Farnell

421,243

425,910

6,335,648

6,750,133

Operating income:

Electronic Components

$

272,751

$

267,253

Farnell

17,671

51,611

290,422

318,864

Corporate expenses

(28,724)

(25,568)

Restructuring, integration and other expenses

 

(7,051)

 

Amortization of acquired intangible assets and other

(878)

(2,759)

Operating income

$

253,769

$

290,537

Sales, by geographic area:

Americas

$

1,573,521

$

1,678,903

EMEA

 

2,308,051

 

2,129,539

Asia

 

2,454,076

 

2,941,691

Sales

$

6,335,648

$

6,750,133

14. Restructuring expenses

During fiscal 2023, the Company’s Farnell operating group incurred restructuring expenses primarily related to the planned closure of a distribution center intended to reduce future operating expenses. The following table presents the activity during the first quarter of fiscal 2024 related to the restructuring liabilities established during fiscal 2024 and the remaining restructuring liabilities established during fiscal 2023:

    

    

Facility

    

Severance

    

Exit Costs

    

Total

(Thousands)

Balance at July 1, 2023

$

15,507

$

504

$

16,011

Fiscal 2024 restructuring expenses

2,678

2,678

Cash payments

 

(196)

(196)

Other, principally foreign currency translation

 

(221)

(221)

Balance at September 30, 2023

$

17,768

$

504

$

18,272

15

This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) with respect to the financial condition, results of operations, and business of the Company. Many of these statements can be found by looking for words like “believes,” “projected,” “plans,” “expects,” “anticipates,” “should,” “will,” “may,” “estimates,” or similar expressions in this Quarterly Report or in documents incorporated by reference in this Quarterly Report. These forward-looking statements are subject to numerous assumptions, risks, and uncertainties. The following important factors, in addition to those discussed elsewhere in this Quarterly Report, and the Company’s Annual Report on Form 10-K for the fiscal year ended July 1, 2023, and subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, could affect the Company’s future results of operations, and could cause those results or other outcomes to differ materially from those expressed or implied in the forward-looking statements: geopolitical events and military conflicts; pandemics and other health-related crises; competitive pressures among distributors of electronic components; an industry down-cycle in semiconductors, including supply shortages; relationships with key suppliers and allocations of products by suppliers, including increased non-cancellable/non-returnable orders; accounts receivable defaults; risks relating to the Company’s international sales and operations, including risks relating to repatriating cash, foreign currency fluctuations, inflation, duties and taxes, sanctions and trade restrictions, and compliance with international and U.S. laws; risks relating to acquisitions, divestitures and investments; adverse effects on the Company’s supply chain, operations of its distribution centers, shipping costs, third-party service providers, customers and suppliers, including as a result of issues caused by military conflicts, terrorist attacks, natural and weather-related disasters, pandemics and health related crises, warehouse modernization, and relocation efforts; risks related to cyber security attacks, other privacy and security incidents, and information systems failures, including related to current or future implementations, integrations, and upgrades; general economic and business conditions (domestic, foreign and global) affecting the Company’s operations and financial performance and, indirectly, the Company’s credit ratings, debt covenant compliance, liquidity, and access to financing; constraints on employee retention and hiring; and legislative or regulatory changes.

Any forward-looking statement speaks only as of the date on which that statement is made. Except as required by law, the Company assumes no obligation to update any forward-looking statement to reflect events or circumstances that occur after the date on which the statement is made.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

For a description of the Company’s critical accounting policies and an understanding of Avnet and the significant factors that influenced the Company’s performance during the quarter ended September 30, 2023, this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the consolidated financial statements, including the related notes, appearing in Item 1 of this Quarterly Report on Form 10-Q, as well as the Company’s Annual Report on Form 10-K for the fiscal year ended July 1, 2023.

The discussion of the Company’s results of operations includes references to the impact of foreign currency translation. When the U.S. Dollar strengthens and the stronger exchange rates are used to translate the results of operations of Avnet’s subsidiaries denominated in foreign currencies, the result is a decrease in U.S. Dollars of reported results. Conversely, when the U.S. Dollar weakens, the weaker exchange rates result in an increase in U.S. Dollars of reported results. In the discussion that follows, results excluding this impact, primarily for subsidiaries in Europe, the Middle East and Africa (“EMEA”) and Asia/Pacific (“Asia”), are referred to as “constant currency.”

In addition to disclosing financial results that are determined in accordance with generally accepted accounting principles in the U.S. (“GAAP”), the Company also discloses certain non-GAAP financial information, including:

Operating income excluding (i) restructuring, integration and other expenses, and (ii) amortization of acquired intangible assets is referred to as “adjusted operating income.”

16

The reconciliation of operating income to adjusted operating income is presented in the following table:

First Quarters Ended

    

September 30,

    

October 1,

2023

    

2022

(Thousands)

Operating income

$

253,769

$

290,537

Restructuring, integration and other expenses

 

7,051

 

Amortization of acquired intangible assets and other

 

878

 

2,759

Adjusted operating income

$

261,698

$

293,296

Management believes that providing this additional information is useful to financial statement users to better assess and understand operating performance, especially when comparing results with prior periods or forecasting performance for future periods, primarily because management typically monitors the business both including and excluding these adjustments to GAAP results. Management also uses these non-GAAP measures to establish operational goals and, in many cases, for measuring performance for compensation purposes. However, any analysis of results on a non-GAAP basis should be used as a complement to, and in conjunction with, results presented in accordance with GAAP.

OVERVIEW

Organization

Avnet, Inc., including its consolidated subsidiaries (collectively, the “Company” or “Avnet”), is a leading global electronic component technology distributor and solutions provider that has served customers’ evolving needs for more than a century. Founded in 1921, the Company works with suppliers in every major technology segment to serve customers in more than 140 countries.

Avnet has two primary operating groups — Electronic Components (“EC”) and Farnell (“Farnell”). Both operating groups have operations in each of the three major economic regions of the world: (i) the Americas, (ii) EMEA, and (iii) Asia. EC markets, sells, and distributes (i) semiconductors, (ii) interconnect, passive and electromechanical components, and (iii) other integrated and embedded components, to a diverse customer base serving many end-markets. Farnell distributes electronic components and industrial products to a diverse customer base utilizing multi-channel sales and marketing resources.

Results of Operations

Executive Summary

Consolidated sales for the first quarter of fiscal 2024 were $6.34 billion, a decrease of $414.5 million or 6.1% compared to sales of $6.75 billion in the prior year first quarter.

Gross profit of $748.1 million and gross profit margin of 11.8% in the first quarter of fiscal 2024 compared to gross profit of $768.2 million and gross profit margin of 11.4% in the first quarter of fiscal 2023.

Operating income of $253.8 million was $36.8 million or 12.7% lower than the prior year first quarter operating income of $290.5 million. Operating income margin was 4.0% in the first quarter of fiscal 2024, as compared to 4.3% in the first quarter of fiscal 2023, a decrease of 29 basis points.

17

Sales

The following table presents sales growth rates for the first quarter of fiscal 2024 as compared to fiscal 2023 by geographic region and operating group.

Quarter Ended

September 30, 2023

Sales

Year-Year %

Sales

Change in

Year-Year

Constant

% Change

Currency

Avnet

(6.1)

%

(7.8)

%

Avnet by region

Americas

(6.3)

%

(6.3)

%

EMEA

8.4

1.9

Asia

(16.6)

(15.8)

Avnet by operating group

EC

(6.5)

%

(8.1)

%

Farnell

(1.1)

(3.8)

Sales were $6.34 billion, down $414.5 million or 6.1% from the prior year first quarter sales of $6.75 billion. Sales decreased by 7.8% in constant currency in the first quarter of fiscal 2024 year over year with both operating groups contributing to this decrease.

EC sales of $5.91 billion in the first quarter of fiscal 2024 decreased $409.8 million or 6.5% from the prior year first quarter sales of $6.32 billion. EC sales decreased 8.1% year over year in constant currency. The decrease in sales in the Company's EC operating group is primarily due to lower demand as a result of the normalization of supply of electronic components when compared to the prior year.

Farnell sales for the first quarter of fiscal 2024 were $421.2 million, a decrease of $4.7 million or 1.1% from the prior year first quarter sales of $425.9 million. Farnell sales in constant currency in the first quarter of fiscal 2024 decreased by 3.8% year over year due primarily to a decline in demand for electronic components from high service distributors and as a result of competitive pricing pressures.

Gross Profit

Gross profit for the first quarter of fiscal 2024 was $748.1 million, a decrease of $20.1 million or 2.6% from the first quarter of fiscal 2023 gross profit of $768.2 million. Gross profit margin of 11.8% increased 43 basis points compared to the first quarter of fiscal 2023 gross profit margin of 11.4%. EC gross profit margin increased year over year primarily due to a larger proportion of sales coming from the higher-margin western regions. Sales in western regions represented approximately 60% of sales in the first quarter of fiscal 2024 as compared to 55% during the first quarter of fiscal 2023. Farnell gross profit margin decreased year over year largely due to the unwinding of component shortage pricing premiums, a lower sales mix of on the board electronic components and from competitive pricing pressures.

Selling, General and Administrative Expenses

Selling, general and administrative expenses (“SG&A expenses”) were $487.3 million in the first quarter of fiscal 2024, an increase of $9.6 million or 2.0% from the first quarter of fiscal 2023. The year-over-year increase in SG&A expenses was primarily a result of foreign currency translation.

Metrics that management monitors with respect to its operating expenses are SG&A expenses as a percentage of sales and as a percentage of gross profit. In the first quarter of fiscal 2024, SG&A expenses were 7.7% of sales and

18

65.1% of gross profit, as compared with 7.1% and 62.2%, respectively, in the first quarter of fiscal 2023. The year-over-year increase in SG&A expense as a percentage of both sales and gross profit is primarily due the decrease in sales and gross profit.

Restructuring, Integration and Other Expenses

The Company recorded restructuring, integration and other expenses of $7.1 million during the first quarter of fiscal 2024. Restructuring expenses consisted of severance costs of $2.7 million related to the reduction, or planned reduction of over 50 employees in the Company’s Farnell operating group. Additionally, during the first quarter of fiscal 2024 the Company recorded $4.4 million in other expenses. The after-tax impact of restructuring, integration, and other expenses were $5.3 million and $0.06 per share on a diluted basis. As of September 30, 2023 the Company does not anticipate any material adjustments relating to the aforementioned restructuring and integration plans.

Operating Income

Operating income for the first quarter of fiscal 2024 was $253.8 million, a decrease of $36.8 million or 12.7%, from the first quarter of fiscal 2023 operating income of $290.5 million. The year-over-year decrease in operating income was primarily driven by the decrease in sales, higher SG&A expenses, and restructuring, integration and other expenses, partially offset by the favorable impact from foreign currency exchange rates. Adjusted operating income for the first quarter of fiscal 2024 was $261.7 million, a decrease of $31.6 million or 10.8% from the first quarter of fiscal 2023. Operating income margin was 4.0% in the first quarter of fiscal 2024, a decrease of 29 basis points compared to 4.3% in the prior year first quarter.

EC operating income margin increased 38 basis points year over year to 4.6% and Farnell operating income margin decreased 792 basis points year over year to 4.2%. EC’s improvement in operating income margin is a result of higher gross profit margins and lower overall SG&A expenses year over year primarily in the western regions. The decrease in operating income margin at Farnell is primarily driven by lower sales and declines in gross profit margin as discussed further above.