10-Q 1 avt-20240330x10q.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 March 30, 2024

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

For the transition period from _____ to _____

Commission File #1-4224

AVNET, INC.

(Exact name of registrant as specified in its charter)

New York

 

 

11-1890605

(State or other jurisdiction

 

 

(IRS Employer

of incorporation or organization)

 

 

Identification No.)

2211 South 47th Street, Phoenix, Arizona

 

85034

(Address of principal executive offices)

 

(Zip Code)

(480) 643-2000

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

N/A

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

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

Title of Each Class

 

Trading Symbol

 

Name of Each Exchange on Which registered:

Common stock, par value $1.00 per share

 

AVT

 

Nasdaq Global Select Market

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

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

Yes þ No

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

Large Accelerated Filer

  

Accelerated Filer

  

Non-accelerated Filer

Smaller Reporting Company

Emerging Growth Company

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

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

As of April 27, 2024, the total number of shares outstanding of the registrant’s Common Stock was 90,380,230 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 March 30, 2024, and July 1, 2023

2

Consolidated Statements of Operations for the third quarters and nine months ended March 30, 2024, and April 1, 2023

3

Consolidated Statements of Comprehensive Income for the third quarters and nine months ended March 30, 2024, and April 1, 2023

4

Consolidated Statements of Shareholders’ Equity for the third quarters and nine months ended March 30, 2024, and April 1, 2023

5

Consolidated Statements of Cash Flows for the nine months ended March 30, 2024, and April 1, 2023

6

Notes to Consolidated Financial Statements

7

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

17

Item 3. Quantitative and Qualitative Disclosures About Market Risk

24

Item 4. Controls and Procedures

25

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

25

Item 1A. Risk Factors

26

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

26

Item 6. Exhibits

27

Signature Page

28

1

PART I

FINANCIAL INFORMATION

Item 1.

Financial Statements

AVNET, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

    

March 30,

    

July 1,

 

2024

2023

 

(Thousands, except share

 

amounts)

 

ASSETS

Current assets:

Cash and cash equivalents

$

218,473

$

288,230

Receivables

 

4,315,063

 

4,763,788

Inventories

 

5,751,872

 

5,465,031

Prepaid and other current assets

 

200,428

 

233,804

Total current assets

 

10,485,836

 

10,750,853

Property, plant and equipment, net

 

561,560

 

441,557

Goodwill

 

780,506

 

780,629

Operating lease assets

219,572

221,698

Other assets

 

277,763

 

282,422

Total assets

$

12,325,237

$

12,477,159

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Short-term debt

$

548,519

$

70,636

Accounts payable

 

3,324,043

 

3,373,820

Accrued expenses and other

565,047

753,130

Short-term operating lease liabilities

 

55,063

 

51,792

Total current liabilities

 

4,492,672

 

4,249,378

Long-term debt

 

2,406,421

 

2,988,029

Long-term operating lease liabilities

183,427

190,621

Other liabilities

 

253,620

 

297,462

Total liabilities

 

7,336,140

 

7,725,490

Commitments and contingencies (Note 7)

Shareholders’ equity:

Common stock $1.00 par; authorized 300,000,000 shares; issued 90,395,434 shares and 91,504,053 shares, respectively

 

90,395

 

91,504

Additional paid-in capital

 

1,709,747

 

1,691,334

Retained earnings

 

3,625,012

 

3,378,212

Accumulated other comprehensive loss

 

(436,057)

 

(409,381)

Total shareholders’ equity

 

4,989,097

 

4,751,669

Total liabilities and shareholders’ equity

$

12,325,237

$

12,477,159

See notes to consolidated financial statements.

2

AVNET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

Third Quarters Ended

Nine Months Ended

    

March 30,

    

April 1,

    

March 30,

    

April 1,

2024

2023

2024

2023

(Thousands, except per share amounts)

Sales

$

5,653,591

$

6,514,619

$

18,194,153

$

19,982,273

Cost of sales

 

4,984,318

 

5,702,771

 

16,070,591

 

17,618,151

Gross profit

 

669,273

 

811,848

 

2,123,562

 

2,364,122

Selling, general and administrative expenses

 

467,275

 

498,219

 

1,419,253

 

1,460,984

Restructuring, integration and other expenses

 

11,847

 

 

24,132

 

Operating income

 

190,151

 

313,629

 

680,177

 

903,138

Other (expense) income, net

 

(14,707)

 

1,653

 

(17,144)

 

3,452

Interest and other financing expenses, net

 

(73,496)

 

(71,695)

 

(218,593)

 

(175,813)

Gain on legal settlements and other

86,499

61,705

Income before taxes

 

101,948

 

243,587

 

530,939

 

792,482

Income tax expense

 

13,114

 

56,161

 

114,906

 

176,910

Net income

$

88,834

$

187,426

$

416,033

$

615,572

Earnings per share:

Basic

$

0.98

$

2.05

$

4.59

$

6.67

Diluted

$

0.97

$

2.03

$

4.52

$

6.58

Shares used to compute earnings per share:

Basic

 

90,430

 

91,436

 

90,726

 

92,226

Diluted

 

91,256

 

92,456

 

92,075

 

93,616

Cash dividends paid per common share

$

0.31

$

0.29

$

0.93

$

0.87

See notes to consolidated financial statements.

3

AVNET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

Third Quarters Ended

Nine Months Ended

    

March 30,

    

April 1,

     

March 30,

    

April 1,

2024

2023

2024

2023

(Thousands)

Net income

$

88,834

$

187,426

$

416,033

$

615,572

Other comprehensive income (loss), net of tax:

Foreign currency translation and other

(89,686)

60,082

 

(27,559)

 

101,671

Cross-currency swap

11,107

(15,407)

(1,284)

(15,407)

Pension adjustments

(25)

387

 

2,167

 

10,586

Total other comprehensive (loss) income, net of tax

(78,604)

45,062

(26,676)

96,850

Total comprehensive income, net of tax

$

10,230

$

232,488

$

389,357

$

712,422

See notes to consolidated financial statements.

4

AVNET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)

    

    

    

    

    

Accumulated

    

Common

Common

Additional

Other

Total

Stock-

Stock-

Paid-In

Retained

Comprehensive

Shareholders’

Shares

Amount

Capital

Earnings

(Loss) Income

Equity

(Thousands)

Balance, July 1, 2023

 

91,504

$

91,504

$

1,691,334

$

3,378,212

$

(409,381)

$

4,751,669

Net income

 

 

 

 

209,268

 

 

209,268

Other comprehensive loss

 

 

 

 

 

(93,761)

 

(93,761)

Cash dividends

 

 

 

 

(28,320)

 

 

(28,320)

Repurchases of common stock

 

(559)

 

(559)

 

(26,484)

 

(27,043)

Stock-based compensation

 

39

39

10,731

10,770

Balance, September 30, 2023

 

90,984

90,984

1,702,065

3,532,676

(503,142)

4,822,583

Net income

 

 

 

 

117,931

 

 

117,931

Other comprehensive income

 

 

 

 

 

145,689

 

145,689

Cash dividends

 

 

 

 

(27,817)

 

 

(27,817)

Repurchases of common stock

 

(1,255)

 

(1,255)

 

(58,595)

 

(59,850)

Stock-based compensation

 

31

 

31

 

11,816

 

 

 

11,847

Balance, December 30, 2023

89,760

89,760

1,713,881

3,564,195

(357,453)

5,010,383

Net income

 

 

 

 

88,834

 

 

88,834

Other comprehensive loss

 

 

 

 

 

(78,604)

 

(78,604)

Cash dividends

 

 

 

 

(28,017)

 

 

(28,017)

Stock-based compensation

 

635

 

635

 

(4,134)

 

 

 

(3,499)

Balance, March 30, 2024

90,395

$

90,395

$

1,709,747

$

3,625,012

$

(436,057)

$

4,989,097

    

    

    

    

    

Accumulated

    

Common

Common

Additional

Other

Total

Stock-

Stock-

Paid-In

Retained

Comprehensive

Shareholders’

Shares

Amount

Capital

Earnings

(Loss) Income

Equity

(Thousands)

Balance, July 2, 2022

 

95,702

$

95,702

$

1,656,907

$

2,921,399

$

(481,248)

$

4,192,760

Net income

 

 

 

 

184,261

 

 

184,261

Other comprehensive loss

 

 

 

 

 

(191,797)

 

(191,797)

Cash dividends

 

 

 

 

(26,998)

 

 

(26,998)

Repurchases of common stock

 

(3,445)

 

(3,445)

 

(144,457)

 

(147,902)

Stock-based compensation

 

72

72

8,939

 

9,011

Balance, October 1, 2022

 

92,329

92,329

1,665,846

2,934,205

(673,045)

4,019,335

Net income

 

 

 

 

243,886

 

 

243,886

Other comprehensive income

 

 

 

 

 

243,585

 

243,585

Cash dividends

 

 

 

 

(26,307)

 

 

(26,307)

Repurchases of common stock

 

(1,629)

 

(1,629)

 

(62,795)

 

(64,424)

Stock-based compensation

 

35

 

35

 

13,553

 

 

 

13,588

Balance, December 31, 2022

90,735

90,735

1,679,399

3,088,989

(429,460)

4,429,663

Net income

 

 

 

 

187,426

 

 

187,426

Other comprehensive income

 

 

 

 

 

45,062

 

45,062

Cash dividends

 

 

 

 

(26,503)

 

 

(26,503)

Stock-based compensation

 

679

 

679

 

(726)

 

 

 

(47)

Balance, April 1, 2023

91,414

$

91,414

$

1,678,673

$

3,249,912

$

(384,398)

$

4,635,601

See notes to consolidated financial statements.

5

AVNET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Nine Months Ended

    

March 30,

    

April 1,

2024

2023

(Thousands)

Cash flows from operating activities:

Net income

$

416,033

$

615,572

Non-cash and other reconciling items:

Depreciation and amortization

 

64,151

 

65,039

Amortization of operating lease assets

40,181

39,962

Deferred income taxes

 

12,895

 

(11,053)

Stock-based compensation

 

27,150

 

30,057

Other, net

 

7,932

 

7,986

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

Receivables

 

424,437

 

(320,097)

Inventories

 

(311,104)

 

(1,033,381)

Accounts payable

 

(23,247)

 

(331,352)

Accrued expenses and other, net

 

(242,698)

 

(10,974)

Net cash flows provided by (used for) operating activities

415,730

(948,241)

Cash flows from financing activities:

Issuance of notes, net of discounts

498,615

Borrowings (repayments) under accounts receivable securitization, net

(80,100)

261,000

Borrowings (repayments) under senior unsecured credit facility, net

(49,057)

763,991

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

22,884

(90,256)

Repurchases of common stock

(86,027)

(221,282)

Dividends paid on common stock

(84,154)

(79,807)

Other, net

(8,033)

(9,814)

Net cash flows (used for) provided by financing activities

(284,487)

1,122,447

Cash flows from investing activities:

Purchases of property, plant and equipment

(200,210)

(137,804)

Other, net

629

(16,326)

Net cash flows used for investing activities

(199,581)

(154,130)

Effect of currency exchange rate changes on cash and cash equivalents

(1,419)

12,168

Cash and cash equivalents:

— (decrease) increase

(69,757)

32,244

— at beginning of period

288,230

153,693

— at end of period

$

218,473

$

185,937

See notes to consolidated financial statements.

6

Table of Contents

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

1. Basis of presentation and new accounting pronouncements

In the opinion of management, the accompanying unaudited interim consolidated financial statements contain all adjustments necessary to present fairly Avnet, Inc. and its consolidated subsidiaries’ (collectively, the “Company” or “Avnet”) financial position, results of operations, comprehensive income, and cash flows. All such adjustments are of a normal recurring nature. Certain reclassifications have been made to fiscal 2023 balances to correspond to the fiscal 2024 consolidated financial statement presentation.

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

Interim results of operations do not necessarily indicate the results to be expected for the full fiscal year. The information included in this Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended July 1, 2023.

Recently adopted accounting pronouncements

In September 2022, the FASB issued ASU No. 2022-04, Liabilities (subtopic 405-50): Supplier Finance Programs (“ASU No. 2022-04”) to enhance the transparency of certain supplier finance programs to assist financial statement users in understanding the effect of such programs on a company’s working capital, liquidity, and cash flows. The new guidance requires qualitative and quantitative disclosure sufficient to enable users of the financial statements to understand the nature, activity during the period, changes from period to period, and potential magnitude of such programs. The Company adopted this guidance in the first quarter of fiscal 2024, except for the amendment on roll-forward information, which is effective for the Company in fiscal 2025. The Company’s adoption of ASU No. 2022-04 did not have a material impact on the Company’s consolidated financial statements.

Recently issued accounting pronouncements

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Tax Disclosures (“ASU No. 2023-09”), which updates income tax disclosures related to the effective income tax rate reconciliation and requires disclosure of income taxes paid by jurisdiction. ASU No. 2023-09 also provides further disclosure comparability. ASU No. 2023-09 will be effective for the Company in fiscal year 2026 and early adoption is permitted. The Company is currently evaluating the impact of adopting ASU No. 2023-09 on its disclosures.

In November 2023, the FASB issued ASU No. 2023-07, Segment reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU No. 2023-07”) which improves segment disclosure requirements, primarily through increased disclosures about significant segment expenses. ASU No. 2023-07 will be effective for the Company in fiscal year 2025, and interim periods beginning in fiscal year 2026 with early adoption permitted. The Company is currently evaluating the impact of adopting ASU No. 2023-07 on its disclosures.

7

Table of Contents

AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

2. Working capital

Receivables

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

March 30,

July 1,

2024

2023

(Thousands)

Receivables

$

4,427,588

$

4,876,631

Allowance for Credit Losses

$

(112,525)

$

(112,843)

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

March 30,

April 1,

2024

2023

(Thousands)

Balance at beginning of the period

$

112,843

$

113,902

Credit Loss Provisions

7,920

9,079

Credit Loss Recoveries

(812)

(140)

Receivables Write Offs

(6,784)

(14,868)

Foreign Currency Effect and Other

(642)

2,249

Balance at end of the period

$

112,525

$

110,222

Inventories

The Company’s inventories are primarily comprised of electronic components purchased from the Company’s suppliers, which are available for sale to customers in the normal course of the Company’s electronic component distribution business. Classified within inventories are electronic components held for supply chain service engagements where the Company is acting as an agent on behalf of an Original Equipment Manufacturer or in some cases the component supplier. Given that these supply chain services involve purchasing and warehousing components as part of the services, the Company classifies the underlying components within inventories on the consolidated balance sheets. Components held for supply chain services where the Company is acting as an agent represented approximately 11% of inventories as of March 30, 2024, and approximately 8% of inventories as of July 1, 2023.

3. Goodwill

The following table presents the change in goodwill by reportable segment for the first nine months ended March 30, 2024.

  

Electronic

  

  

Components

Farnell

Total

(Thousands)

Carrying value at July 1, 2023 (1)

$

296,829

$

483,800

$

780,629

Foreign currency translation

 

(467)

 

344

 

(123)

Carrying value at March 30, 2024 (1)

$

296,362

$

484,144

$

780,506

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

8

Table of Contents

AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

4. Debt

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

March 30,

July 1,

March 30,

July 1,

2024

   

2023

   

2024

   

2023

Interest Rate

Carrying Balance

 

Revolving credit facilities:

Accounts receivable securitization program (due December 2024)

6.18

%

$

475,700

$

Other short-term debt

5.61

%

5.08

%

72,819

70,636

Short-term debt

$

548,519

$

70,636

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 $1.13 billion and $1.27 billion at March 30, 2024, and July 1, 2023, respectively. The Securitization Program contains certain covenants relating to the quality of the receivables sold.

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

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

March 30,

July 1,

March 30,

July 1,

2024

    

2023

  

2024

  

2023

Interest Rate

Carrying Balance

 

Revolving credit facilities:

Accounts receivable securitization program

5.99

%

$

$

555,800

Credit Facility

5.25

%

4.85

%

745,128

796,552

Other long-term debt

4.74

%

23,599

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

 

2,418,727

 

3,002,352

Discount and debt issuance costs – unamortized

 

(12,306)

 

(14,323)

Long-term debt

$

2,406,421

$

2,988,029

9

Table of Contents

AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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 March 30, 2024, 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 March 30, 2024, and July 1, 2023.

As of March 30, 2024, the carrying value and fair value of the Company’s total debt was $2.95 billion and $2.90 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 public notes was estimated based on quoted market prices (Level 1) and, for other forms of debt, fair value approximates carrying value due to the market based variable nature of the interest rates on those debt facilities (Level 2).

5. Leases

Substantially all the Company’s leases are classified as operating leases and are predominately related to real property for distribution centers, office space, and integration facilities with a lease term of up to 14 years. The Company’s equipment leases are primarily for automobiles and distribution center equipment and are not material to the consolidated financial statements.

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

Third Quarters Ended

Nine Months Ended

March 30,

April 1,

March 30,

April 1,

2024

  

2023

  

2024

  

2023

Operating lease cost

$

17,199

$

14,354

$

46,904

$

47,836

Variable lease cost

6,459

5,043

22,303

17,071

Total lease cost

$

23,658

$

19,397

$

69,207

$

64,907

Future minimum operating lease payments as of March 30, 2024, are as follows (in thousands):

Fiscal Year

Remainder of fiscal 2024

$

17,512

2025

58,941

2026

 

47,946

2027

 

29,411

2028

 

23,191

Thereafter

 

102,416

Total future operating lease payments

279,417

Total imputed interest on operating lease liabilities

(40,927)

Total operating lease liabilities

$

238,490

10

Table of Contents

AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Other information pertaining to operating leases consists of the following:

Nine Months Ended

March 30,

April 1,

2024

  

2023

Operating Lease Term and Discount Rate

Weighted-average remaining lease term in years

7.7

8.4

Weighted-average discount rate

3.8

%

3.8

%

Supplemental Cash Flow Information (in thousands)

Cash paid for operating lease liabilities

$

42,996

$

43,030

Operating lease assets obtained from new operating lease liabilities

$

42,544

$

34,318

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 using 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 on 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 loss” 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 is based on 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.

11

Table of Contents

AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The locations and fair values of the Company’s derivative financial instruments in the Company’s consolidated balance sheets are as follows:

March 30,

    

July 1,

2024

2023

(Thousands)

Economic hedges