Company Quick10K Filing
Quick10K
Avnet
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$41.64 106 $4,426
10-Q 2019-09-28 Quarter: 2019-09-28
10-K 2019-06-29 Annual: 2019-06-29
10-Q 2019-03-30 Quarter: 2019-03-30
10-Q 2018-12-29 Quarter: 2018-12-29
10-Q 2018-09-29 Quarter: 2018-09-29
10-K 2018-06-30 Annual: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-Q 2017-12-30 Quarter: 2017-12-30
10-Q 2017-09-30 Quarter: 2017-09-30
10-K 2017-07-01 Annual: 2017-07-01
10-Q 2017-04-01 Quarter: 2017-04-01
10-Q 2016-12-31 Quarter: 2016-12-31
10-Q 2016-10-01 Quarter: 2016-10-01
10-K 2016-07-02 Annual: 2016-07-02
10-Q 2016-04-02 Quarter: 2016-04-02
10-Q 2016-01-02 Quarter: 2016-01-02
10-Q 2015-10-03 Quarter: 2015-10-03
10-K 2015-06-27 Annual: 2015-06-27
10-Q 2015-03-28 Quarter: 2015-03-28
10-Q 2014-12-27 Quarter: 2014-12-27
10-Q 2014-09-27 Quarter: 2014-09-27
10-K 2014-06-28 Annual: 2014-06-28
10-Q 2014-03-29 Quarter: 2014-03-29
10-Q 2013-12-28 Quarter: 2013-12-28
8-K 2019-10-24 Earnings, Exhibits
8-K 2019-10-04 Other Events
8-K 2019-08-08 Earnings, Exhibits
8-K 2019-06-17 Officers
8-K 2019-04-25 Earnings, Exhibits
8-K 2019-02-18 Other Events, Exhibits
8-K 2019-01-24 Earnings, Exhibits
8-K 2019-01-24 Earnings, Exhibits
8-K 2018-11-19 Shareholder Vote, Other Events, Exhibits
8-K 2018-10-25 Earnings, Exhibits
8-K 2018-08-29 Officers, Regulation FD, Other Events, Exhibits
8-K 2018-08-16 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-08-08 Earnings, Exhibits
8-K 2018-06-28 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-05-24 Officers, Exhibits
8-K 2018-04-26 Regulation FD, Exhibits
8-K 2018-02-07 Officers, Other Events, Exhibits
8-K 2018-01-25 Earnings, Exhibits
TEL TE Connectivity 30,203
ARW Arrow Electronics 5,741
IIVI II-VI 2,322
NVMI Nova Measuring Instruments 759
TESS Tessco Technologies 128
VOXX VOXX 118
CYBE Cyberoptics 97
CUI CUI Global 17
TAIT Taitron Components 16
AWSM Cool Holdings 14
AVT 2019-09-28
Part I
Item 1.Financial Statements
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3.Quantitative and Qualitative Disclosures About Market Risk
Item 4.Controls and Procedures
Part II
Item 1.Legal Proceedings
Item 1A.Risk Factors
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Item 6.Exhibits
EX-31.1 avt-20190928ex311e39a86.htm
EX-31.2 avt-20190928ex312f51153.htm
EX-32.1 avt-20190928ex32191a113.htm
EX-32.2 avt-20190928ex322ca6f47.htm

Avnet Earnings 2019-09-28

AVT 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

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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 September 28, 2019

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 17, 2019, the total number of shares outstanding of the registrant’s Common Stock was 100,962,258 shares, net of treasury shares.

Table of Contents

AVNET, INC. AND SUBSIDIARIES

INDEX

Page No.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets at September 28, 2019 and June 29, 2019

2

Consolidated Statements of Operations for the first quarters ended September 28, 2019 and September 29, 2018

3

Consolidated Statements of Comprehensive Income for the first quarters ended September 28, 2019 and September 29, 2018

4

Consolidated Statements of Shareholders’ Equity for the first quarters ended September 28, 2019 and September 29, 2018

5

Consolidated Statements of Cash Flows for the first quarters ended September 28, 2019 and September 29, 2018

6

Notes to Consolidated Financial Statements

7

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

20

Item 3. Quantitative and Qualitative Disclosures About Market Risk

27

Item 4. Controls and Procedures

27

PART II. OTHER INFORMATION

27

Item 1. Legal Proceedings

27

Item 1A. Risk Factors

28

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

28

Item 6. Exhibits

29

Signature Page

30

1

Table of Contents

PART I

FINANCIAL INFORMATION

Item 1.

Financial Statements

AVNET, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

    

September 28,

    

June 29,

 

2019

2019

 

(Thousands, except share

 

amounts)

 

ASSETS

Current assets:

Cash and cash equivalents

$

664,108

$

546,105

Receivables, less allowances of $50,541 and $53,499, respectively

 

3,129,387

 

3,168,369

Inventories

 

3,025,980

 

3,008,424

Prepaid and other current assets

 

169,471

 

153,438

Total current assets

 

6,988,946

 

6,876,336

Property, plant and equipment, net

 

437,467

 

452,171

Goodwill

 

858,656

 

876,728

Intangible assets, net

 

120,139

 

143,520

Operating lease assets (Note 5)

278,570

Other assets

 

229,559

 

215,801

Total assets

$

8,913,337

$

8,564,556

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Short-term debt

$

638,402

$

300,538

Accounts payable

 

2,025,518

 

1,864,342

Accrued expenses and other

418,230

413,696

Short-term operating lease liabilities (Note 5)

 

55,149

 

Total current liabilities

 

3,137,299

 

2,578,576

Long-term debt

 

1,191,975

 

1,419,922

Long-term operating lease liabilities (Note 5)

245,406

Other liabilities

 

380,586

 

425,585

Total liabilities

 

4,955,266

 

4,424,083

Commitments and contingencies (Note 7)

Shareholders’ equity:

Common stock $1.00 par; authorized 300,000,000 shares; issued 101,470,636 shares and 104,037,769 shares, respectively

 

101,471

 

104,038

Additional paid-in capital

 

1,580,706

 

1,573,005

Retained earnings

 

2,678,266

 

2,767,469

Accumulated other comprehensive loss

 

(402,372)

 

(304,039)

Total shareholders’ equity

 

3,958,071

 

4,140,473

Total liabilities and shareholders’ equity

$

8,913,337

$

8,564,556

See notes to consolidated financial statements.

2

Table of Contents

AVNET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

First Quarters Ended

    

September 28,

    

September 29,

2019

2018

(Thousands, except per share amounts)

Sales

$

4,630,009

$

5,089,879

Cost of sales

 

4,086,170

 

4,453,129

Gross profit

 

543,839

 

636,750

Selling, general and administrative expenses

 

456,503

 

475,146

Restructuring, integration and other expenses

 

24,598

 

14,788

Operating income

 

62,738

 

146,816

Other income (expense), net

 

4,931

 

(1,892)

Interest and other financing expenses, net

 

(33,631)

 

(30,093)

Income from continuing operations before taxes

 

34,038

 

114,831

Income tax (benefit) expense

 

(7,714)

 

31,302

Income from continuing operations, net of tax

41,752

83,529

Income from discontinued operations, net of tax

195

Net income

41,752

83,724

Earnings per share - basic:

Continuing operations

$

0.40

$

0.73

Discontinued operations

Net income per share basic

0.40

0.73

Earnings per share - diluted:

Continuing operations

$

0.40

$

0.72

Discontinued operations

Net income per share diluted

0.40

0.72

Shares used to compute earnings per share:

Basic

 

103,130

 

115,260

Diluted

 

104,377

 

116,471

Cash dividends paid per common share

$

0.21

$

0.20

See notes to consolidated financial statements.

3

Table of Contents

AVNET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

First Quarters Ended

    

September 28,

    

September 29,

 

2019

2018

(Thousands)

Net income

$

41,752

$

83,724

Other comprehensive (loss) income, net of tax:

Foreign currency translation and other

 

(102,146)

 

8,801

Pension adjustments, net

 

3,813

 

756

Total comprehensive (loss) income

$

(56,581)

$

93,281

See notes to consolidated financial statements.

4

Table of Contents

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, June 29, 2019

 

104,038

$

104,038

$

1,573,005

$

2,767,469

$

(304,039)

$

4,140,473

Net income

 

 

 

 

41,752

 

 

41,752

Other comprehensive loss

 

 

 

 

 

(98,333)

 

(98,333)

Cash dividends

 

 

 

 

(21,451)

 

 

(21,451)

Repurchases of common stock

 

(2,631)

 

(2,631)

 

(109,504)

 

(112,135)

Stock-based compensation

 

64

 

64

 

7,701

 

 

 

7,765

Balance, September 28, 2019

101,471

$

101,471

$

1,580,706

$

2,678,266

$

(402,372)

$

3,958,071

    

    

    

    

    

Accumulated

    

Common

Common

Additional

Other

Total

Stock-

Stock-

Paid-In

Retained

Comprehensive

Shareholders’

Shares

Amount

Capital

Earnings

(Loss) Income

Equity

(Thousands)

Balance, June 30, 2018

 

115,825

$

115,825

$

1,528,713

$

3,235,894

$

(195,351)

$

4,685,081

Net income

 

 

 

 

83,724

 

 

83,724

Other comprehensive income

 

 

 

 

 

9,557

 

9,557

Cash dividends

 

 

 

 

(22,932)

 

 

(22,932)

Repurchases of common stock

 

(3,315)

 

(3,315)

 

(153,582)

 

(156,897)

Effects of new accounting principles

(3,832)

(3,832)

Stock-based compensation

 

521

 

521

 

25,851

 

 

 

26,372

Balance, September 29, 2018

113,031

$

113,031

$

1,554,564

$

3,139,272

$

(185,794)

$

4,621,073

See notes to consolidated financial statements.

5

Table of Contents

AVNET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

First Quarters Ended

    

September 28,

    

September 29,

2019

2018

(Thousands)

Cash flows from operating activities:

Net income

$

41,752

$

83,724

Less: Income from discontinued operations, net of tax

195

Income from continuing operations

41,752

83,529

Non-cash and other reconciling items:

Depreciation

 

24,669

 

25,389

Amortization

 

19,911

 

20,810

Amortization of operating lease asset

15,839

Deferred income taxes

 

(3,970)

 

36,830

Stock-based compensation

 

7,218

 

9,044

Other, net

 

8,034

 

14,994

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

Receivables

 

(6,703)

 

(19,292)

Inventories

 

(64,194)

 

(269,649)

Accounts payable

 

189,746

 

95,119

Accrued expenses and other, net

 

(36,660)

 

(81,753)

Net cash flows provided (used) for operating activities - continuing operations

195,642

(84,979)

Net cash flows provided (used) for operating activities

 

195,642

 

(84,979)

Cash flows from financing activities:

Borrowings (repayments) under accounts receivable securitization, net

 

110,800

 

(40,000)

Repayments under senior unsecured credit facility, net

(1,100)

 

(1,217)

Repayments under bank credit facilities and other debt, net

 

(745)

 

(50,330)

Repurchases of common stock

 

(110,805)

 

(149,094)

Dividends paid on common stock

 

(21,451)

 

(22,932)

Other, net

 

548

 

17,328

Net cash flows used for financing activities - continuing operations

(22,753)

(246,245)

Net cash flows used for financing activities

 

(22,753)

 

(246,245)

Cash flows from investing activities:

Purchases of property, plant and equipment

 

(29,864)

 

(41,007)

Other, net

 

(12,515)

 

65

Net cash flows used for investing activities - continuing operations

(42,379)

(40,942)

Net cash flows provided by investing activities - discontinued operations

120,000

Net cash flows (used) provided by investing activities

 

(42,379)

 

79,058

Effect of currency exchange rate changes on cash and cash equivalents

 

(12,507)

 

(3,107)

Cash and cash equivalents:

— increase (decrease)

118,003

(255,273)

— at beginning of period

546,105

621,125

— at end of period

$

664,108

$

365,852

See notes to consolidated financial statements.

6

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AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

The preparation of 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.

Interim results of operations are not necessarily indicative of 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 June 29, 2019.

Certain reclassifications have been made in prior periods to conform to the current period presentation.

Recently adopted accounting pronouncements

The Company adopted Accounting Standards Update (“ASU”) No. 2016-02, “Leases (Topic 842),” and its related amendments (collectively “ASC 842”) on June 30, 2019 (the first day of fiscal 2020) using the modified transition approach without restating the comparative period consolidated financial statements. The standard requires lessees to recognize a right-of-use (“ROU”) asset and lease liability for all leases.

The adoption of ASC 842 did not have a material impact on the Company’s consolidated statements of operations or retained earnings. The Company elected the package of practical expedients permitted under the transition guidance that allowed, among other things, the historical lease classification to be carried forward without reassessment and the hindsight practical expedient. The Company elected to not separate lease and non-lease components for its real estate leases. Refer to Note 5 for additional disclosures related to leases.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815) - Targeted Improvements to Accounting for Hedging Activities” and its related amendments (collectively “ASC 815”), which improves the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements and makes certain targeted improvements to simplify the qualification and application of hedge accounting compared to current GAAP. This update is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The adoption of ASC 815 in the first quarter of fiscal 2020 did not have any impact on the Company’s consolidated financial statements.

Recently issued accounting pronouncements

In August 2018, the FASB issued Accounting Standards Update No. 2018-15, Intangibles—Goodwill and Other— Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force) ("ASU No. 2018-15"). ASU No. 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop internal-use software. ASU No. 2018-15 is effective for the Company in the first quarter of fiscal 2021, with early adoption permitted, and is to be applied either retrospectively or prospectively. The Company is currently evaluating the potential effects of adopting the provisions of ASU No. 2018-15.

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AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

In August 2018, the FASB issued Accounting Standards Update No. 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans (“ASU No. 2018-14”). The new guidance modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans, including removing certain previous disclosure requirements, adding certain new disclosure requirements, and clarifying certain other disclosure requirements. The ASU will be effective for the Company in the first quarter of fiscal 2022, and early adoption is permitted. The Company’s planned adoption of ASU 2018-14 is not expected to have an impact on the Company’s consolidated financial statements.

2. Discontinued operations

In February 2017, the Company completed the sale of its Technology Solutions business (“TS business”) to Tech Data Corporation (the “Buyer”). The TS business and the financial impacts of the divestiture are classified as discontinued operations in all periods presented. In August 2018, the Company executed a settlement agreement with the Buyer resulting in a final adjustment of $120.0 million and a final geographic allocation of the TS business sales price for tax reporting purposes. This incremental consideration received from the sale of the TS business as well as cash settlements from the resolution of indemnification claims and other cash reimbursements have been classified as cash flow from discontinued operations investing activities. Income tax payments related to the gain on sale of the TS business have been classified as cash flow from discontinued operations operating activities.

Under the contractual terms of the sale of the TS business, the Company has indemnified the Buyer for certain liabilities including tax related matters, which may result in future indemnification expenses and indemnification payments to the Buyer depending upon the outcome of those matters subject to indemnification.

3. Goodwill and intangible assets

Goodwill

The following table presents the change in goodwill by reportable segment for the three months ended September 28, 2019.

  

Electronic

  

  

Components

Farnell

Total

(Thousands)

Carrying value at June 29, 2019 (1)

$

390,896

$

485,832

$

876,728

Additions from acquisitions

 

 

 

Foreign currency translation

 

(5,108)

 

(12,964)

 

(18,072)

Carrying value at September 28, 2019 (1)

$

385,788

$

472,868

$

858,656

(1)Includes accumulated impairment of $1,045,110 from fiscal 2009, $181,440 from fiscal 2018 and $137,396 from fiscal 2019

The Company evaluates each quarter if facts and circumstances indicate that it is more likely than not that the fair value of its reporting units is less than their carrying value, which would require the Company to perform an interim goodwill impairment test. Indicators the Company evaluates to determine whether an interim goodwill impairment test is necessary include, but are not limited to, (i) a sustained decrease in share price or market capitalization as of any fiscal quarter end, (ii) changes in the macroeconomic or industry environments, (iii) the results of and the amount of time passed since the last goodwill impairment test and (iv) the long-term expected financial performance of its reporting units. During the first quarter of fiscal 2020, the Company concluded that an interim goodwill impairment test was not required.

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AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Intangible Assets

The following table presents the Company’s acquired intangible assets at September 28, 2019, and June 29, 2019, respectively.

September 28, 2019

June 29, 2019

 

Acquired

Accumulated

Net Book

 Acquired 

 Accumulated 

 Net Book 

 

    

Amount

    

Amortization

    

Value

    

Amount

    

Amortization

    

Value

 

(Thousands)

 

Customer related

$

284,993

$

(218,402)

$

66,591

$

292,266

$

(208,329)

$

83,937

Trade name

 

51,323

 

(26,107)

 

25,216

 

52,760

 

(24,752)

 

28,008

Technology and other

 

62,255

 

(33,923)

 

28,332

 

63,753

 

(32,178)

 

31,575

$

398,571

$

(278,432)

$

120,139

$

408,779

$

(265,259)

$

143,520

Intangible asset amortization expense from continuing operations was $19.9 million and $20.8 million for the first quarters of fiscal 2020 and 2019, respectively. Intangible assets have a weighted average remaining useful life of approximately two years. The following table presents the estimated future amortization expense for the remainder of fiscal 2020 and the next five fiscal years (in thousands):

Fiscal Year

    

Remainder of fiscal 2020

$

59,212

2021

39,439

2022

 

14,132

2023

 

5,864

2024

 

1,492

2025

 

Total

$

120,139

4. Debt

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

September 28,

June 29,

September 28,

June 29,

2019

   

2019

   

2019

   

2019

Interest Rate

Carrying Balance

 

Bank credit facilities and other

1.08

%

1.02

%

$

302

$

538

Accounts receivable securitization program

2.80

%

338,100

Public notes due June 2020

5.88

%

5.88

%

 

300,000

 

300,000

Short-term debt

$

638,402

$

300,538

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

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AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The Company has an accounts receivable securitization program (the “Securitization Program”) in the United States with a group of financial institutions to allow 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 up to a maximum of $500 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 $839.6 million and $857.3 million at September 28, 2019, and June 29, 2019, respectively. The Securitization Program contains certain covenants relating to the quality of the receivables sold. The Securitization Program also requires the Company to maintain certain minimum interest coverage and leverage ratios, which the Company was in compliance with as of September 28, 2019, and June 29, 2019. The Securitization Program expires in August 2020 and as a result the Company has classified outstanding balances as short-term debt as of September 28, 2019. Interest on borrowings is calculated using a one-month LIBOR rate plus a spread of 0.75%. The facility fee on the unused balance of the facility is up to 0.35%.

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

September 28,

June 29,

September 28,

June 29,

2019

   

2019

  

2019

  

2019

Interest Rate

Carrying Balance

 

Revolving credit facilities:

Accounts receivable securitization program

3.15

%

$

$

227,300

Credit Facility

5.68

%

1,100

Public notes due:

December 2021

3.75

%

3.75

%

300,000

300,000

December 2022

4.88

%

4.88

%

 

350,000

 

350,000

April 2026

4.63

%

4.63

%

550,000

550,000

Other long-term debt

1.12

%

1.00

%

 

348

 

403

Long-term debt before discount and debt issuance costs

 

1,200,348

 

1,428,803

Discount and debt issuance costs – unamortized

 

(8,373)

 

(8,881)

Long-term debt

$

1,191,975

$

1,419,922

The Company has a five-year $1.25 billion senior unsecured revolving credit facility (the “Credit Facility”) with a syndicate of banks, consisting 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, which expires in June 2023. Subject to certain conditions, the Credit Facility may be increased up to $1.50 billion. Under the Credit Facility, the Company may select from various interest rate options, currencies and maturities. The Credit Facility contains certain covenants including various limitations on debt incurrence, share repurchases, dividends, investments and capital expenditures. The Credit Facility also includes financial covenants requiring the Company to maintain minimum interest coverage and leverage ratios, which the Company was in compliance with as of September 28, 2019 and June 29, 2019. As of September 28, 2019, and June 29, 2019, there were $4.2 million and $4.0 million, respectively, in letters of credit issued under the Credit Facility.

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AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

As of September 28, 2019, the carrying value and fair value of the Company’s total debt was $1.83 billion and $1.91 billion, respectively. At June 29, 2019, the carrying value and fair value of the Company’s total debt was $1.72 billion and $1.78 billion, respectively. Fair value for the public notes was estimated based upon quoted market prices and for other forms of debt fair value approximates carrying value due to the market based variable nature of the interest rates on those debt facilities.

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 remaining lease term of up to 19 years. The Company’s equipment leases are primarily for automobiles and equipment and are not material to the consolidated financial statements.

The Company determines if an arrangement contains a lease at inception based on whether it conveys the right to control the use of an identified asset in exchange for consideration. Lease right-of-use assets (“operating lease assets”) and associated liabilities (“operating lease liabilities”) are recognized at the commencement date of the lease based on the present value of lease payments over the lease term. Certain lease agreements may include one or more options to extend or terminate a lease. Lease terms are inclusive of these options if it is reasonably certain that the Company will exercise such options.

The Company’s leases generally do not provide a readily determinable implicit borrowing rate, as such, the discount rate used to calculate present value is the Company’s incremental secured borrowing rate. The incremental secured borrowing rates used at the date of adoption for each lease varies in accordance with the remaining lease term and the currency of the lease payments. Lease cost is recognized on a straight-line basis over the lease term and is included as a component of “Selling, general, and administrative expenses” in the consolidated statements of operations. Lease payments are primarily fixed; however, certain lease agreements contain variable payments, which are expensed as incurred and not included in the measurement of operating lease assets and liabilities.

The components of lease cost related to the Company’s operating leases were as follows (in thousands):

First Quarter

Ended

September 28, 2019

Operating lease cost

$

18,802

Variable lease cost

5,268

Total lease cost

$

24,070

Future minimum operating lease payments as of September 28, 2019 are as follows (in thousands):

Fiscal Year

Remainder of fiscal 2020

$

49,441

2021

 

53,034

2022

 

42,442

2023

 

36,932

2024

 

29,215

Thereafter

 

158,895

Total future operating lease payments

369,959

Total imputed interest on operating lease liabilities

(69,404)

Total operating lease liabilities

$

300,555

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AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Prior to the Company’s adoption of ASC 842, future minimum operating lease payments as of June 29, 2019, were as follows (in thousands) on an undiscounted basis and excluding non-lease components:

Fiscal Year

2020

$

68,710

2021

 

52,225

2022

 

42,069

2023

 

32,245

2024

 

23,305

Thereafter

 

85,196

Total lease payments

$

303,750

Other information pertaining to operating leases consists of the following:

Operating Lease Term and Discount Rate

Weighted-average remaining lease term in years

9.6

Weighted-average discount rate

3.8

%

Supplemental cash flow information related to the Company’s operating leases for the three months ended September 28, 2019 was as follows (in thousands):

Supplemental Cash Flow Information:

Cash paid for operating lease liabilities

$

15,322

Operating lease assets obtained from new operating lease liabilities

6,404

6. Derivative financial instruments

Many of the Company’s subsidiaries purchase and sell products in currencies other than their functional currencies. This subjects the Company to the risks associated with fluctuations in foreign currency exchange rates. The Company reduces this risk by utilizing natural hedging (e.g., offsetting receivables and payables in the same foreign currency) as well as by creating offsetting positions through the use of derivative financial instruments, primarily forward foreign exchange contracts typically with maturities of less than 60 days (“economic hedges”), but no longer than one year. The Company continues to have exposure to foreign currency risks to the extent they are not economically hedged. The Company adjusts any economic hedges to fair value through the consolidated statements of operations primarily within “Other income (expense), net.” The fair value of forward foreign exchange contracts, which are based upon Level 2 criteria under the ASC 820 fair value hierarchy, are classified in the captions “Prepaid and other current assets” or “Accrued expenses and other,” as applicable, in the accompanying consolidated balance sheets as of September 28, 2019 and June 29, 2019. The Company’s master netting and other similar arrangements with various financial institutions related to derivative financial instruments allow for the right of offset. The Company’s policy is to present derivative financial instruments with the same counterparty as either a net asset or liability when the right of offset exists.

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

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

12

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AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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

September 28,

    

June 29,

 

2019

2019

(Thousands)

Prepaid and other current assets

$

4,058

$

5,511

Accrued expenses and other

5,705

6,154

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

First Quarters Ended

September 28,

    

September 29,

2019

2018

(Thousands)

Net derivative financial instrument gain

$

9,500

$

2,792

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 underlying assets or liabilities being economically hedged.

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, including import/export and environmental matters. 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 for such matters due primarily to being in the early stages of the related proceedings and investigations. 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 one reporting period.

As of September 28, 2019, and June 29, 2019, the Company had aggregate estimated liabilities of $14.7 million classified within accrued expenses and other for such compliance-related matters that were reasonably estimable as of such dates.

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AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

8. Income taxes

The Company’s effective tax rate on its income from continuing operations before taxes was (22.7)% in the first quarter of fiscal 2020 as compared with 27.3% in the first quarter of fiscal 2019. During the first quarter of fiscal 2020, the Company’s effective tax rate was favorably impacted primarily by (i) the release of unrecognized tax benefit reserves and (ii) the mix of income in lower tax jurisdictions. During the first quarter of fiscal 2019, the Company’s effective tax rate was unfavorably impacted primarily by (i) an adjustment to the provisional estimate for the one-time mandatory deemed repatriation tax liability recorded under the requirements of recent tax law changes in the United States (the “Act”) and (ii) increases in unrecognized tax benefits, partially offset by (iii) an adjustment to the provisional deferred tax impacts of the Act and (iv) the mix of income in lower tax jurisdictions.

The Company’s effective tax rates in fiscal years 2019 and 2020 are based on the Company’s interpretation of tax regulations under the Act including the computation of Global Intangible Low Taxed Income (“GILTI”). The Company has made a policy election to account for any impacts of the GILTI tax as a period expense. The Company’s effective tax rate may change in future periods due to changes in U.S. tax regulations and the issuance of additional guidance related to the Act.

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 were as follows:

First Quarters Ended

  

September 28,

    

September 29,

2019

   

2018

(Thousands)

Service cost

$

3,786

$

3,734

Total net periodic pension cost within selling, general and administrative expenses

3,786

3,734

Interest cost

 

5,638

 

6,614

Expected return on plan assets

 

(12,668)

 

(13,301)

Amortization of prior service cost (credit)

 

534

 

(393)

Recognized net actuarial loss

 

3,637

 

2,535

Total net periodic pension benefit within other income (expense), net

(2,859)

(4,545)

Net periodic pension cost (benefit)

$

927

$

(811)

The Company expects to make contributions to the Plan of $8.0 million during fiscal 2020. There were no contributions made during the first quarter of fiscal 2020.

Amounts reclassified out of accumulated other comprehensive income, net of tax, to other income (expense), net during the first quarters of fiscal 2020 and fiscal 2019 were not material and substantially all related to net periodic pension costs including recognition of actuarial losses and amortization of prior service costs and credits.

14

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AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

10. Shareholders’ equity

Share repurchase program

In August 2019, the Company’s Board of Directors authorized a $500 million increase in the Company’s existing share repurchase program, increasing the cumulative total of authorized share repurchases to $2.95 billion of common stock in the open market or through privately negotiated transactions. The timing and actual number of shares repurchased will depend on a variety of factors such as share price, corporate and regulatory requirements, and prevailing market conditions. During the three months ended September 28, 2019, the Company repurchased 2.6 million shares under this program for a total cost of $112.1 million. As of September 28, 2019, the Company had $593.3 million remaining under its share repurchase authorization.

Common stock dividend

In August 2019, the Company’s Board of Directors approved a dividend of $0.21 per common share and dividend payments of $21.5 million were made in September 2019.

11. Earnings per share

First Quarters Ended

 

September 28,

September 29,

2019

  

2018

(Thousands, except per share data)

Numerator:

   

Income from continuing operations

$

41,752

$

83,529

Income from discontinued operations

 

195

Net income

$

41,752

$

83,724

Denominator:

Weighted average common shares for basic earnings per share

 

103,130

 

115,260

Net effect of dilutive stock based compensation awards

 

1,247

 

1,211

Weighted average common shares for diluted earnings per share

 

104,377

 

116,471

Basic earnings per share - continuing operations

$

0.40

$

0.73

Basic earnings per share - discontinued operations

Basic earnings per share

$

0.40

$

0.73

Diluted earnings per share - continuing operations

$

0.40

$

0.72

Diluted earnings per share - discontinued operations

Diluted earnings per share

$

0.40

$

0.72

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

388

1,113

15

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AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

12. Additional cash flow information

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

First Quarters Ended

   

September 28,

   

September 29,

2019

2018

(Thousands)

Non-cash Investing Activities:

Capital expenditures incurred but not paid

$

7,500

$

9,690

Non-cash Financing Activities:

Unsettled share repurchases

$

2,734

$

11,228

Supplemental Cash Flow Information:

Interest

$

19,214

$

13,826

Income tax (refunds) payments - continuing and discontinued operations

(5,192)

54,519

Included in cash and cash equivalents as of September 28, 2019 and June 29, 2019 was $16.1 million and $9.4 million, respectively, of cash equivalents, which was primarily comprised of investment grade money market funds and overnight time deposits.

16

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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”). EC markets and sells semiconductors and interconnect, passive and electromechanical devices and integrated components to a diverse customer base serving many end-markets. Farnell distributes electronic components and related products to the electronic system design community utilizing multi-channel sales and marketing resources.

First Quarters Ended

September 28,

September 29,

2019

    

2018

 

(Thousands)

Sales:

    

    

    

    

Electronic Components

$

4,294,187

$

4,710,825

Farnell

335,822

379,054

4,630,009

5,089,879

Operating income:

Electronic Components

$

112,286