10-Q 1 avt-20221231x10q.htm 10-Q
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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 December 31, 2022

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission File #1-4224

AVNET, INC.

(Exact name of registrant as specified in its charter)

New York

 

 

11-1890605

(State or other jurisdiction

 

 

(IRS Employer

of incorporation or organization)

 

 

Identification No.)

2211 South 47th Street, Phoenix, Arizona

 

85034

(Address of principal executive offices)

 

(Zip Code)

(480) 643-2000

(Registrant’s telephone number, including area code.)

N/A

(Former name, former address and former fiscal year, if changed since last report.)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

 

Trading Symbol

 

Name of Each Exchange on Which registered:

Common stock, par value $1.00 per share

 

AVT

 

Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes þ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

  

Accelerated Filer

  

Non-accelerated Filer

Smaller Reporting Company

Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of January 25, 2023, the total number of shares outstanding of the registrant’s Common Stock was 91,379,483 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 December 31, 2022 and July 2, 2022

2

Consolidated Statements of Operations for the second quarters and six months ended December 31, 2022 and January 1, 2022

3

Consolidated Statements of Comprehensive Income for the second quarters and six months ended December 31, 2022 and January 1, 2022

4

Consolidated Statements of Shareholders’ Equity for the second quarters and six months ended December 31, 2022 and January 1, 2022

5

Consolidated Statements of Cash Flows for the six months ended December 31, 2022 and January 1, 2022

6

Notes to Consolidated Financial Statements

7

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

17

Item 3. Quantitative and Qualitative Disclosures About Market Risk

23

Item 4. Controls and Procedures

24

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

24

Item 1A. Risk Factors

24

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

25

Item 6. Exhibits

26

Signature Page

27

1

PART I

FINANCIAL INFORMATION

Item 1.

Financial Statements

AVNET, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

    

December 31,

    

July 2,

 

2022

2022

 

(Thousands, except share

 

amounts)

 

ASSETS

Current assets:

Cash and cash equivalents

$

324,778

$

153,693

Receivables

 

4,789,402

 

4,301,002

Inventories

 

4,972,898

 

4,244,148

Prepaid and other current assets

 

216,487

 

177,783

Total current assets

 

10,303,565

 

8,876,626

Property, plant and equipment, net

 

378,269

 

315,204

Goodwill

 

755,030

 

758,833

Operating lease assets

229,537

227,138

Other assets

 

263,473

 

210,731

Total assets

$

11,929,874

$

10,388,532

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Short-term debt

$

209,401

$

174,422

Accounts payable

 

3,106,667

 

3,431,683

Accrued expenses and other

688,643

591,020

Short-term operating lease liabilities

 

52,944

 

54,529

Total current liabilities

 

4,057,655

 

4,251,654

Long-term debt

 

2,979,823

 

1,437,400

Long-term operating lease liabilities

198,986

199,418

Other liabilities

 

263,747

 

307,300

Total liabilities

 

7,500,211

 

6,195,772

Commitments and contingencies (Note 7)

Shareholders’ equity:

Common stock $1.00 par; authorized 300,000,000 shares; issued 90,735,161 shares and 95,701,630 shares, respectively

 

90,735

 

95,702

Additional paid-in capital

 

1,679,399

 

1,656,907

Retained earnings

 

3,088,989

 

2,921,399

Accumulated other comprehensive loss

 

(429,460)

 

(481,248)

Total shareholders’ equity

 

4,429,663

 

4,192,760

Total liabilities and shareholders’ equity

$

11,929,874

$

10,388,532

See notes to consolidated financial statements.

2

AVNET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

Second Quarters Ended

Six Months Ended

    

December 31,

    

January 1,

    

December 31,

    

January 1,

2022

2022

2022

2022

(Thousands, except per share amounts)

Sales

$

6,717,521

$

5,865,217

$

13,467,654

$

11,449,912

Cost of sales

 

5,933,421

 

5,152,182

 

11,915,381

 

10,077,185

Gross profit

 

784,100

 

713,035

 

1,552,273

 

1,372,727

Selling, general and administrative expenses

 

485,127

 

501,363

 

962,764

 

987,540

Restructuring, integration and other expenses

 

 

 

 

5,272

Operating income

 

298,973

 

211,672

 

589,509

 

379,915

Other income, net

 

1,476

 

1,737

 

1,800

 

1,327

Interest and other financing expenses, net

 

(59,020)

 

(21,630)

 

(104,118)

 

(44,474)

Gain on legal settlement (Note 7)

61,705

61,705

Income before taxes

 

303,134

 

191,779

 

548,896

 

336,768

Income tax expense

 

59,248

 

40,958

 

120,749

 

74,629

Net income

$

243,886

$

150,821

$

428,147

$

262,139

Earnings per share:

Basic

$

2.67

$

1.52

$

4.62

$

2.64

Diluted

$

2.63

$

1.50

$

4.55

$

2.60

Shares used to compute earnings per share:

Basic

 

91,192

 

99,032

 

92,621

 

99,340

Diluted

 

92,755

 

100,286

 

94,195

 

100,701

Cash dividends paid per common share

$

0.29

$

0.24

$

0.58

$

0.48

See notes to consolidated financial statements.

3

AVNET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

Second Quarters Ended

Six Months Ended

    

December 31,

    

January 1,

     

December 31,

    

January 1,

2022

2022

2022

2022

(Thousands)

Net income

$

243,886

$

150,821

$

428,147

$

262,139

Other comprehensive income (loss), net of tax:

Foreign currency translation and other

 

243,252

 

(48,982)

 

41,589

 

(78,018)

Pension adjustments, net

 

333

 

4,010

 

10,199

 

8,022

Total comprehensive income

$

487,471

$

105,849

$

479,935

$

192,143

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 2, 2022

 

95,702

$

95,702

$

1,656,907

$

2,921,399

$

(481,248)

$

4,192,760

Net income

 

 

 

 

184,261

 

 

184,261

Translation adjustments and other

 

 

 

 

 

(201,663)

 

(201,663)

Pension liability adjustments, net

9,866

9,866

Cash dividends

 

 

 

 

(26,998)

 

 

(26,998)

Repurchases of common stock

 

(3,445)

 

(3,445)

 

(144,457)

 

(147,902)

Stock-based compensation

 

72

72

8,939

9,011

Balance, October 1, 2022

 

92,329

92,329

1,665,846

2,934,205

(673,045)

4,019,335

Net income

 

 

 

 

243,886

 

 

243,886

Translation adjustments and other

 

 

 

 

 

243,252

 

243,252

Pension liability adjustments, net

333

333

Cash dividends

 

 

 

 

(26,307)

 

 

(26,307)

Repurchases of common stock

 

(1,629)

 

(1,629)

 

(62,795)

 

(64,424)

Stock-based compensation

 

35

 

35

 

13,553

 

 

 

13,588

Balance, December 31, 2022

90,735

$

90,735

$

1,679,399

$

3,088,989

$

(429,460)

$

4,429,663

    

    

    

    

    

Accumulated

    

Common

Common

Additional

Other

Total

Stock-

Stock-

Paid-In

Retained

Comprehensive

Shareholders’

Shares

Amount

Capital

Earnings

(Loss) Income

Equity

(Thousands)

Balance, July 3, 2021

 

99,601

$

99,601

$

1,622,160

$

2,516,170

$

(153,747)

$

4,084,184

Net income

 

 

 

 

111,318

 

 

111,318

Translation adjustments and other

 

 

 

 

 

(29,036)

 

(29,036)

Pension liability adjustments, net

4,012

4,012

Cash dividends

 

 

 

 

(23,893)

 

 

(23,893)

Repurchases of common stock

 

(275)

 

(275)

 

(10,228)

 

(10,503)

Stock-based compensation

 

10

10

9,507

 

9,517

Balance, October 2, 2021

 

99,336

99,336

1,631,667

2,593,367

(178,771)

4,145,599

Net income

 

 

 

 

150,821

 

 

150,821

Translation adjustments and other

 

 

 

 

 

(48,982)

 

(48,982)

Pension liability adjustments, net

4,010

4,010

Cash dividends

 

 

 

 

(23,749)

 

 

(23,749)

Repurchases of common stock

 

(921)

 

(921)

 

(34,421)

 

(35,342)

Stock-based compensation

 

15

 

15

 

10,854

 

 

 

10,869

Balance, January 1, 2022

98,430

$

98,430

$

1,642,521

$

2,686,018

$

(223,743)

$

4,203,226

See notes to consolidated financial statements.

5

AVNET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Six Months Ended

    

December 31,

    

January 1,

2022

2022

(Thousands)

Cash flows from operating activities:

Net income

$

428,147

$

262,139

Non-cash and other reconciling items:

Depreciation

 

39,411

 

43,876

Amortization

 

4,294

 

8,964

Amortization of operating lease assets

26,414

27,426

Deferred income taxes

 

(15,581)

 

(4,451)

Stock-based compensation

 

21,338

 

19,556

Other, net

 

7,199

 

10,281

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

Receivables

 

(469,650)

 

(558,702)

Inventories

 

(686,884)

 

(359,755)

Accounts payable

 

(341,210)

 

328,574

Accrued expenses and other, net

 

20,021

 

(41,117)

Net cash flows used for operating activities

 

(966,501)

 

(263,209)

Cash flows from financing activities:

Borrowings under accounts receivable securitization, net

 

352,200

 

190,400

Borrowings under senior unsecured credit facility, net

1,132,245

 

109,669

Borrowings (repayments) under bank credit facilities and other debt, net

 

47,712

 

(1,550)

Repurchases of common stock

 

(221,282)

 

(45,570)

Dividends paid on common stock

 

(53,304)

 

(47,642)

Other, net

 

(1,048)

 

(6,069)

Net cash flows provided by financing activities

 

1,256,523

 

199,238

Cash flows from investing activities:

Purchases of property, plant and equipment

 

(111,436)

 

(22,116)

Other, net

 

(16,279)

 

68,270

Net cash flows (used) provided by investing activities

 

(127,715)

 

46,154

Effect of currency exchange rate changes on cash and cash equivalents

 

8,778

 

(14,056)

Cash and cash equivalents:

— increase (decrease)

171,085

(31,873)

— at beginning of period

153,693

199,691

— at end of period

$

324,778

$

167,818

See notes to consolidated financial statements.

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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 2022 balances to correspond to the fiscal 2023 consolidated financial statement presentation.

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

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

Recently adopted accounting pronouncements

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

Recently issued accounting pronouncements

In September 2022, the FASB issued ASU No. 2022-04, Liabilities (subtopic 405-50): Supplier Finance Programs (“ASU No. 2022-04”) to enhance the transparency of certain supplier finance programs to allow financial statement users to understand the effect on working capital, liquidity and cash flows. The new pronouncement requires disclosure of key terms of the programs, including a description of the payment terms, payment timing and assets pledged as security or other forms of guarantees provided to the finance provider or intermediary. Other requirements include the disclosure of the amount that remains unpaid as of the end of the reporting period, a description of where these obligations are presented in the balance sheet and a rollforward of the obligations during the annual period. The guidance is effective for the Company in the first quarter of fiscal 2024, except for the rollforward, which is effective in fiscal 2025. Early adoption is permitted. The Company is currently evaluating any impact from adoption of this pronouncement.

2. Receivables

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

December 31,

July 2,

2022

2022

(Thousands)

Receivables

$

4,895,907

$

4,414,904

Allowance for Credit Losses

(106,505)

(113,902)

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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 six months of fiscal 2023 and fiscal 2022:

December 31,

January 1,

2022

2022

(Thousands)

Balance at beginning of the period

$

113,902

$

88,160

Credit Loss Provisions

4,803

8,391

Credit Loss Recoveries

(456)

(321)

Receivables Write Offs

(12,476)

(4,930)

Foreign Currency Effect and Other

732

(1,726)

Balance at end of the period

$

106,505

$

89,574

3. Goodwill and intangible assets

Goodwill

The following table presents the change in goodwill by reportable segment for the six months ended December 31, 2022.

  

Electronic

  

  

Components

Farnell

Total

(Thousands)

Carrying value at July 2, 2022 (1)

$

291,526

$

467,307

$

758,833

Foreign currency translation

 

569

 

(4,372)

 

(3,803)

Carrying value at December 31, 2022 (1)

$

292,095

$

462,935

$

755,030

(1)Includes accumulated impairments of $1,482,677 from prior fiscal years.

Intangible Assets

The net book value of intangible assets were $8.2 million as of December 31, 2022, which is not material to the consolidated financial statements. Intangible asset amortization expense was $1.5 million and $3.8 million for the second quarters of fiscal 2023 and 2022, respectively, and $4.3 million and $9.0 million for the first six months of fiscal 2023 and 2022, respectively.

4. Debt

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

December 31,

July 2,

December 31,

July 2,

2022

   

2022

   

2022

   

2022

Interest Rate

Carrying Balance

 

Other short-term debt

4.85

%

2.09

%

$

209,401

$

174,422

Short-term debt

$

209,401

$

174,422

Other short-term debt consists primarily of various committed and uncommitted lines of credit and other forms of bank debt with financial institutions utilized primarily to support the ongoing working capital requirements of the Company, including its foreign operations.

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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):

December 31,

July 2,

December 31,

July 2,

2022

    

2022

  

2022

  

2022

Interest Rate

Carrying Balance

 

Revolving credit facilities:

Accounts receivable securitization program (due December 2024)

5.21

%

2.55

%

$

650,000

$

297,800

Credit Facility (due August 2027)

4.37

%

1,189,742

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

Long-term debt before discount and debt issuance costs

 

2,989,742

 

1,447,800

Discount and debt issuance costs – unamortized

 

(9,919)

 

(10,400)

Long-term debt

$

2,979,823

$

1,437,400

In December 2022, the Company amended and extended for two years its trade accounts receivable securitization program (the “Securitization Program”) in the United States with a group of financial institutions. The Securitization Program allows the Company to transfer, on an ongoing revolving basis, an undivided interest in a designated pool of trade accounts receivable, to provide security or collateral for borrowings of up to a maximum of $650 million. The Securitization Program does not qualify for off balance sheet accounting treatment and any borrowings under the Securitization Program are recorded as debt in the consolidated balance sheets. Under the Securitization Program, the Company legally sells and isolates certain U.S. trade accounts receivable into a wholly owned and consolidated bankruptcy remote special purpose entity. Such receivables, which are recorded within “Receivables” in the consolidated balance sheets, totaled $1.28 billion and $1.12 billion at December 31, 2022, and July 2, 2022, respectively. The Securitization Program contains certain covenants relating to the quality of the receivables sold.

In August 2022, the Company amended and extended its five-year $1.25 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 December 31, 2022, and July 2, 2022, there were $1.0 million and $1.2 million, respectively, in letters of credit issued under the Credit Facility. Subject to certain conditions, the Credit Facility may be increased up to $1.50 billion through an amendment, which the Company obtained in November 2022. 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 December 31, 2022, and July 2, 2022.

As of December 31, 2022, the carrying value and fair value of the Company’s total debt was $3.19 billion and $3.08 billion, respectively. At July 2, 2022, the carrying value and fair value of the Company’s total debt was $1.61 billion and $1.55 billion, respectively. Fair value for the public notes was estimated based upon quoted market prices (Level 1) and, for other forms of debt, fair value approximates carrying value due to the market based variable nature of the interest rates on those debt facilities (Level 2).

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Table of Contents

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):

Second Quarters Ended

Six Months Ended

December 31,

January 1,

December 31,

January 1,

2022

  

2022

2022

  

2022

Operating lease cost

$

16,917

$

17,129

$

33,482

$

34,975

Variable lease cost

5,715

6,733

12,028

12,851

Total lease cost

$

22,632

$

23,862

$

45,510

$

47,826

Future minimum operating lease payments as of December 31, 2022, are as follows (in thousands):

Fiscal Year

Remainder of fiscal 2023

$

32,757

2024

 

53,201

2025

 

42,838

2026

 

33,816

2027

 

22,376

Thereafter

 

114,900

Total future operating lease payments

299,888

Total imputed interest on operating lease liabilities

(47,958)

Total operating lease liabilities

$

251,930

Other information pertaining to operating leases consists of the following:

Six Months Ended

December 31,

January 1,

2022

  

2022

Operating Lease Term and Discount Rate

Weighted-average remaining lease term in years

8.4

8.9

Weighted-average discount rate

3.8

%

3.8

%

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

Six Months Ended

December 31,

January 1,

2022

  

2022

Supplemental Cash Flow Information:

Cash paid for operating lease liabilities

$

28,463

$

29,456

Operating lease assets obtained from new operating lease liabilities

29,640

13,478

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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. 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 Company adjusts any economic hedges to fair value through the consolidated statements of operations primarily within “Other income, 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 December 31, 2022, and July 2, 2022. 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 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 EMEA and Asian foreign currencies.

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:

December 31,

    

July 2,

2022

2022

(Thousands)

Prepaid and other current assets

$

59,693

$

24,907

Accrued expenses and other

36,536

29,663

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

Second Quarters Ended

Six Months Ended

December 31,

    

January 1,

 

December 31,

    

January 1,

2022

2022

2022

2022

(Thousands)

Net derivative financial instrument gain (loss)

$

11,543

$

(7,012)

$

11,184

$

(15,783)

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.

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AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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 December 31, 2022, and July 2, 2022, 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.

Gain on Legal Settlement

During the second quarter of fiscal 2023, the Company recorded a gain on legal settlement of $61.7 million in connection with the settlement of claims filed against certain manufacturers of capacitors. As of December 31, 2022, the Company has received $51.2 million in cash related to these settlements, which were classified as operating cash flows in the Company’s Consolidated Statements of Cash Flows.

8. Income taxes

The Company’s effective tax rate on its income before taxes was 19.5% in the second quarter of fiscal 2023. During the second quarter of fiscal 2023, the Company’s effective tax rate was favorably impacted primarily by (i) decreases to unrecognized tax benefit reserves, partially offset by (ii) the mix of income in higher tax jurisdictions.

During the second quarter of fiscal 2022, the Company’s effective tax rate on its income before taxes was 21.4%. During the second quarter of fiscal 2022, there were no individual items impacting the Company’s effective tax rate.

For the first six months of fiscal 2023, the Company’s effective tax rate on its income before taxes was 22.0%. The effective tax rate for the first six months of fiscal 2023 was unfavorably impacted primarily by (i) the mix of income in higher tax jurisdictions, partially offset by (ii) decreases to unrecognized tax benefit reserves.

During the first six months of fiscal 2022, the Company’s effective tax rate on its income before taxes was 22.2%. The effective tax rate for the first six months of fiscal 2022 was unfavorably impacted primarily by increases to valuation allowances.

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:

Second Quarters Ended

Six Months Ended

  

December 31,

    

January 1,

  

December 31,

    

January 1,

2022

   

2022

  

2022

   

2022

(Thousands)

Service cost

$

3,004

$

3,751

$

6,008

$

7,503

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

3,004

3,751

6,008

7,503

Interest cost

 

6,683

 

3,947

 

13,365

 

7,894

Expected return on plan assets

 

(12,215)

 

(12,284)

 

(24,430)

 

(24,568)

Amortization of prior service cost

 

1

 

1

 

2

 

2

Recognized net actuarial loss

 

618

 

4,086

 

1,235

 

8,172

Total net periodic pension benefit within other income, net

(4,913)

(4,250)

(9,828)

(8,500)

Net periodic pension benefit

$

(1,909)

$

(499)

$

(3,820)

$

(997)

The Company made $4.0 million of contributions during the first six months of fiscal 2023 and expects to make additional contributions to the Plan of $4.0 million in the remainder of fiscal 2023.

10. Shareholders’ equity

Share repurchase program

In May 2022, the Company’s Board of Directors approved a new share repurchase plan with an authorization to repurchase up to an aggregate of $600 million 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, expected liquidity, expected compliance with financial debt convents, corporate and regulatory requirements, and prevailing market conditions. During the second quarter of fiscal 2023, the Company repurchased 1.6 million shares under this program for a total cost of $64.4 million. As of December 31, 2022, the Company had $319.0 million remaining under its share repurchase authorization.

Common stock dividend

In November 2022, the Company’s Board of Directors approved a dividend of $0.29 per common share and dividend payments of $26.3 million were made in December 2022.

13