AVNET INC [AVT] Filings

10-Q 1 avt-20230930x10q.htm 10-Q

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.

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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

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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.

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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.

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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.

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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 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.

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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.

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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 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)

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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 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.

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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):


	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).

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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

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AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

6. Derivative financial instruments

Many of the Company’s subsidiaries purchase and sell products in currencies other than their functional currencies, which subjects the Company to the risks associated with fluctuations in currency exchange rates. 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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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.

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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.

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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.

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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

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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.”

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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.

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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