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
| |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| |
For the quarterly period ended April 3, 2021 | |
| |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| |
For the transition period from _____ to _____ |
For the quarterly period ended December 30, 2017
Commission File #1-4224#1-4224
AVNET, INC.
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
Incorporated in New York(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 |
IRS Employer Identification No. 11-1890605
2211 South 47th Street, Phoenix, Arizona 85034
(480) 643-2000
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 and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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 |
|
Non-accelerated | | Smaller | |
Emerging | | | |
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 18, 2018,April 21, 2021, the total number of shares outstanding of the registrant’s Common Stock was 119,945,29399,502,049 shares, net of treasury shares.
AVNET, INC. AND SUBSIDIARIES
| Page No. |
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Consolidated Balance Sheets at | |
2 | |
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3 | |
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4 | |
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5 | |
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6 | |
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7 | |
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
20 | |
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Item 3. Quantitative and Qualitative Disclosures About Market Risk | |
29 | |
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29 | |
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30 | |
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30 | |
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | |
30 | |
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31 | |
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32 |
1
FINANCIAL INFORMATION
Item 1. Financial StatementsItem 1.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
|
|
|
|
|
|
|
|
| December 30, |
| July 1, |
| ||
|
| 2017 |
| 2017 |
| ||
|
| (Thousands, except share |
| ||||
|
| amounts) |
| ||||
ASSETS |
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 589,518 |
| $ | 836,384 |
|
Marketable securities |
|
| 136,443 |
|
| 281,326 |
|
Receivables, less allowances of $50,559 and $47,272, respectively |
|
| 3,295,014 |
|
| 3,337,624 |
|
Inventories |
|
| 3,285,926 |
|
| 2,824,709 |
|
Prepaid and other current assets |
|
| 269,204 |
|
| 253,765 |
|
Total current assets |
|
| 7,576,105 |
|
| 7,533,808 |
|
Property, plant and equipment, net |
|
| 507,692 |
|
| 519,575 |
|
Goodwill |
|
| 1,181,013 |
|
| 1,148,347 |
|
Intangible assets, net |
|
| 269,743 |
|
| 277,291 |
|
Other assets |
|
| 265,952 |
|
| 220,568 |
|
Total assets |
| $ | 9,800,505 |
| $ | 9,699,589 |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
Short-term debt |
| $ | 243,351 |
| $ | 50,113 |
|
Accounts payable |
|
| 1,958,145 |
|
| 1,861,635 |
|
Accrued expenses and other |
|
| 554,140 |
|
| 542,023 |
|
Total current liabilities |
|
| 2,755,636 |
|
| 2,453,771 |
|
Long-term debt |
|
| 1,488,066 |
|
| 1,729,212 |
|
Other liabilities |
|
| 308,259 |
|
| 334,538 |
|
Total liabilities |
|
| 4,551,961 |
|
| 4,517,521 |
|
Commitments and contingencies (Note 7) |
|
|
|
|
|
|
|
Shareholders’ equity: |
|
|
|
|
|
|
|
Common stock $1.00 par; authorized 300,000,000 shares; issued 119,600,864 shares and 123,080,952 shares, respectively |
|
| 119,601 |
|
| 123,081 |
|
Additional paid-in capital |
|
| 1,520,858 |
|
| 1,503,490 |
|
Retained earnings |
|
| 3,724,978 |
|
| 3,799,363 |
|
Accumulated other comprehensive loss |
|
| (116,893) |
|
| (243,866) |
|
Total shareholders’ equity |
|
| 5,248,544 |
|
| 5,182,068 |
|
Total liabilities and shareholders’ equity |
| $ | 9,800,505 |
| $ | 9,699,589 |
|
See notes to consolidated financial statements.
2
| | | | | | | |
|
| April 3, |
| June 27, |
| ||
| | 2021 | | 2020 |
| ||
| | (Thousands, except share |
| ||||
| | amounts) |
| ||||
ASSETS | | | | | | | |
Current assets: | | | | | | | |
Cash and cash equivalents | | $ | 322,749 | | $ | 477,038 | |
Receivables | |
| 3,365,677 | |
| 2,928,386 | |
Inventories | |
| 2,760,156 | |
| 2,731,988 | |
Prepaid and other current assets | |
| 156,023 | |
| 191,394 | |
Total current assets | |
| 6,604,605 | |
| 6,328,806 | |
Property, plant and equipment, net | |
| 381,083 | |
| 404,607 | |
Goodwill | |
| 838,460 | |
| 773,734 | |
Intangible assets, net | |
| 33,770 | |
| 65,437 | |
Operating lease assets | | | 275,662 | | | 275,917 | |
Other assets | | �� | 232,335 | |
| 256,696 | |
Total assets | | $ | 8,365,915 | | $ | 8,105,197 | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | |
Current liabilities: | | | | | | | |
Short-term debt | | $ | 300,043 | | $ | 51 | |
Accounts payable | |
| 2,001,743 | |
| 1,754,078 | |
Accrued expenses and other | | | 526,974 | | | 472,924 | |
Short-term operating lease liabilities | |
| 57,182 | |
| 53,313 | |
Total current liabilities | |
| 2,885,942 | |
| 2,280,366 | |
Long-term debt | |
| 895,913 | |
| 1,424,791 | |
Long-term operating lease liabilities | | | 250,108 | | | 253,719 | |
Other liabilities | |
| 396,065 | |
| 419,923 | |
Total liabilities | |
| 4,428,028 | |
| 4,378,799 | |
Commitments and contingencies (Note 9) | | | | | | | |
Shareholders’ equity: | | | | | | | |
Common stock $1.00 par; authorized 300,000,000 shares; issued 99,489,060 shares and 98,792,542 shares, respectively | |
| 99,489 | |
| 98,793 | |
Additional paid-in capital | |
| 1,611,114 | |
| 1,594,140 | |
Retained earnings | |
| 2,452,723 | |
| 2,421,845 | |
Accumulated other comprehensive loss | |
| (225,439) | |
| (388,380) | |
Total shareholders’ equity | |
| 3,937,887 | |
| 3,726,398 | |
Total liabilities and shareholders’ equity | | $ | 8,365,915 | | $ | 8,105,197 | |
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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|
|
|
|
|
|
|
| Second Quarters Ended |
| Six Months Ended |
| ||||||||
|
| December 30, |
| December 31, |
| December 30, |
| December 31, |
| ||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
|
| (Thousands, except per share amounts) |
| ||||||||||
Sales |
| $ | 4,521,636 |
| $ | 4,273,559 |
| $ | 9,182,578 |
| $ | 8,391,663 |
|
Cost of sales |
|
| 3,919,175 |
|
| 3,687,374 |
|
| 7,967,563 |
|
| 7,282,823 |
|
Gross profit |
|
| 602,461 |
|
| 586,185 |
|
| 1,215,015 |
|
| 1,108,840 |
|
Selling, general and administrative expenses |
|
| 478,681 |
|
| 431,555 |
|
| 974,886 |
|
| 795,227 |
|
Restructuring, integration and other expenses |
|
| 36,762 |
|
| 30,400 |
|
| 83,156 |
|
| 59,869 |
|
Operating income |
|
| 87,018 |
|
| 124,230 |
|
| 156,973 |
|
| 253,744 |
|
Other income (expense), net |
|
| 762 |
|
| (36,514) |
|
| 16,341 |
|
| (50,248) |
|
Interest expense |
|
| (25,640) |
|
| (26,748) |
|
| (49,700) |
|
| (53,984) |
|
Income from continuing operations before taxes |
|
| 62,140 |
|
| 60,968 |
|
| 123,614 |
|
| 149,512 |
|
Income tax expense |
|
| 5,346 |
|
| 28,503 |
|
| 8,638 |
|
| 49,359 |
|
Income from continuing operations, net of tax |
|
| 56,794 |
|
| 32,465 |
|
| 114,976 |
|
| 100,153 |
|
Income (loss) from discontinued operations, net of tax |
|
| (10,070) |
|
| 70,753 |
|
| (9,949) |
|
| 71,908 |
|
Net income |
|
| 46,724 |
|
| 103,218 |
|
| 105,027 |
|
| 172,061 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share - basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
| $ | 0.47 |
| $ | 0.25 |
| $ | 0.94 |
| $ | 0.78 |
|
Discontinued operations |
|
| (0.08) |
|
| 0.55 |
|
| (0.08) |
|
| 0.56 |
|
Net income per share basic |
|
| 0.39 |
|
| 0.80 |
|
| 0.86 |
|
| 1.34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share - diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
| $ | 0.47 |
| $ | 0.25 |
| $ | 0.93 |
| $ | 0.77 |
|
Discontinued operations |
|
| (0.08) |
|
| 0.54 |
|
| (0.08) |
|
| 0.55 |
|
Net income per share diluted |
|
| 0.39 |
|
| 0.79 |
|
| 0.85 |
|
| 1.32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used to compute earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 120,400 |
|
| 127,901 |
|
| 121,543 |
|
| 127,716 |
|
Diluted |
|
| 121,749 |
|
| 130,347 |
|
| 122,867 |
|
| 130,055 |
|
Cash dividends paid per common share |
| $ | 0.18 |
| $ | 0.17 |
| $ | 0.36 |
| $ | 0.34 |
|
See notes to consolidated financial statements.
3
2
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMEOPERATIONS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Second Quarters Ended |
| Six Months Ended |
| ||||||||
|
| December 30, |
| December 31, |
| December 30, |
| December 31, |
| ||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
|
| (Thousands) |
| ||||||||||
Net income |
| $ | 46,724 |
| $ | 103,218 |
| $ | 105,027 |
| $ | 172,061 |
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation and other |
|
| 27,941 |
|
| (182,663) |
|
| 116,784 |
|
| (151,002) |
|
Pension adjustments, net |
|
| 9,250 |
|
| 3,183 |
|
| 10,189 |
|
| 3,802 |
|
Total comprehensive income (loss) |
| $ | 83,915 |
| $ | (76,262) |
| $ | 232,000 |
| $ | 24,861 |
|
| | | | | | | | | | | | |
| | Third Quarters Ended | | Nine Months Ended | ||||||||
|
| April 3, |
| March 28, |
| April 3, |
| March 28, | ||||
| | 2021 | | 2020 | | 2021 | | 2020 | ||||
| | (Thousands, except per share amounts) | ||||||||||
Sales | | $ | 4,916,714 | | $ | 4,309,818 | | $ | 14,307,945 | | $ | 13,474,632 |
Cost of sales | |
| 4,348,364 | |
| 3,790,885 | |
| 12,712,262 | |
| 11,886,247 |
Gross profit | |
| 568,350 | |
| 518,933 | |
| 1,595,683 | |
| 1,588,385 |
Selling, general and administrative expenses | |
| 463,092 | |
| 469,646 | |
| 1,376,333 | |
| 1,391,024 |
Goodwill and long-lived asset impairment expense | | | — | | | 145,836 | | | — | | | 145,836 |
Restructuring, integration and other expenses | |
| 17,574 | |
| 19,211 | |
| 55,943 | |
| 58,073 |
Operating income (loss) | |
| 87,684 | |
| (115,760) | |
| 163,407 | |
| (6,548) |
Other income (expense), net | |
| 4,779 | |
| (12,608) | |
| (16,052) | |
| (9,640) |
Interest and other financing expenses, net | |
| (22,342) | |
| (29,718) | |
| (66,128) | |
| (97,254) |
Income (loss) before taxes | |
| 70,121 | |
| (158,086) | |
| 81,227 | |
| (113,442) |
Income tax benefit | |
| (37,363) | |
| (29,425) | |
| (26,532) | |
| (30,200) |
Net income (loss) | | $ | 107,484 | | $ | (128,661) | | $ | 107,759 | | $ | (83,242) |
| | | | | | | | | | | | |
Earnings (loss) per share: | | | | | | | | | | | | |
Basic | | $ | 1.08 | | $ | (1.29) | | $ | 1.09 | | $ | (0.82) |
Diluted | | $ | 1.07 | | $ | (1.29) | | $ | 1.08 | | $ | (0.82) |
| | | | | | | | | | | | |
Shares used to compute earnings per share: | | | | | | | | | | | | |
Basic | |
| 99,542 | |
| 99,479 | |
| 99,125 | |
| 101,013 |
Diluted | |
| 100,247 | |
| 99,479 | |
| 100,013 | |
| 101,013 |
Cash dividends paid per common share | | $ | 0.21 | | $ | 0.21 | | $ | 0.63 | | $ | 0.63 |
See notes to consolidated financial statements.
4
3
CONSOLIDATED STATEMENTS OF CASH FLOWSCOMPREHENSIVE INCOME
(Unaudited)
|
|
|
|
|
|
|
|
|
| Six Months Ended |
| ||||
|
| December 30, |
| December 31, |
| ||
|
| 2017 |
| 2016 |
| ||
|
| (Thousands) |
| ||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
Net income |
| $ | 105,027 |
| $ | 172,061 |
|
Less: Income (loss) from discontinued operations, net of tax |
|
| (9,949) |
|
| 71,908 |
|
Income from continuing operations |
|
| 114,976 |
|
| 100,153 |
|
|
|
|
|
|
|
|
|
Non-cash and other reconciling items: |
|
|
|
|
|
|
|
Depreciation |
|
| 77,510 |
|
| 45,616 |
|
Amortization |
|
| 47,256 |
|
| 11,759 |
|
Deferred income taxes |
|
| (55,921) |
|
| 9,312 |
|
Stock-based compensation |
|
| 17,090 |
|
| 32,525 |
|
Other, net |
|
| 22,386 |
|
| 13,069 |
|
Changes in (net of effects from businesses acquired and divested): |
|
|
|
|
|
|
|
Receivables |
|
| 108,459 |
|
| (127,153) |
|
Inventories |
|
| (410,361) |
|
| 139,672 |
|
Accounts payable |
|
| 75,342 |
|
| 133,698 |
|
Accrued expenses and other, net |
|
| (55,955) |
|
| (55,437) |
|
Net cash flows (used) provided by operating activities - continuing operations |
|
| (59,218) |
|
| 303,214 |
|
Net cash flows used by operating activities - discontinued operations |
|
| — |
|
| (63,124) |
|
Net cash flows (used) provided by operating activities |
|
| (59,218) |
|
| 240,090 |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
Issuance of notes, net of issuance costs |
|
| — |
|
| 296,374 |
|
Repayment of notes |
|
| — |
|
| (378,559) |
|
Borrowings (repayments) under accounts receivable securitization, net |
|
| 78,000 |
|
| (264,963) |
|
Borrowings (repayments) under senior unsecured credit facility, net |
|
| (99,971) |
|
| 771,174 |
|
Repayments under bank credit facilities and other debt, net |
|
| (27,381) |
|
| (18,978) |
|
Borrowings of term loans |
|
| — |
|
| 530,756 |
|
Repurchases of common stock |
|
| (135,458) |
|
| — |
|
Dividends paid on common stock |
|
| (43,572) |
|
| (43,426) |
|
Other, net |
|
| (1,214) |
|
| 13,825 |
|
Net cash flows (used) provided by financing activities - continuing operations |
|
| (229,596) |
|
| 906,203 |
|
Net cash flows used by financing activities - discontinued operations |
|
| — |
|
| (16,505) |
|
Net cash flows (used) provided by financing activities |
|
| (229,596) |
|
| 889,698 |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
|
| (67,397) |
|
| (70,424) |
|
Acquisitions of businesses, net of cash acquired (Note 2) |
|
| (14,661) |
|
| (798,366) |
|
Other, net |
|
| 2,402 |
|
| 7,766 |
|
Net cash flows used for investing activities - continuing operations |
|
| (79,656) |
|
| (861,024) |
|
Net cash flows provided (used) by investing activities - discontinued operations |
|
| 112,664 |
|
| (3,093) |
|
Net cash flows provided (used) by investing activities |
|
| 33,008 |
|
| (864,117) |
|
|
|
|
|
|
|
|
|
Effect of currency exchange rate changes on cash and cash equivalents |
|
| 8,940 |
|
| (27,007) |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents: |
|
|
|
|
|
|
|
— (decrease) increase |
|
| (246,866) |
|
| 238,664 |
|
— at beginning of period |
|
| 836,384 |
|
| 1,031,478 |
|
— at end of period |
| $ | 589,518 |
| $ | 1,270,142 |
|
| | | | | | | | | | | | |
| | Third Quarters Ended | | Nine Months Ended | ||||||||
|
| April 3, |
| March 28, |
| April 3, |
| March 28, | ||||
| | 2021 | | 2020 | | 2021 | | 2020 | ||||
| | (Thousands) | ||||||||||
Net income (loss) | | $ | 107,484 | | $ | (128,661) | | $ | 107,759 | | $ | (83,242) |
Other comprehensive income (loss), net of tax: | | | | | | | | | | | | |
Foreign currency translation and other | |
| (65,021) | |
| (96,351) | |
| 145,352 | |
| (105,311) |
Pension adjustments, net | |
| 3,983 | |
| 3,167 | |
| 17,589 | |
| 10,148 |
Total comprehensive income (loss) | | $ | 46,446 | | $ | (221,845) | | $ | 270,700 | | $ | (178,405) |
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, June 27, 2020 | |
| 98,793 | | $ | 98,793 | | $ | 1,594,140 | | $ | 2,421,845 | | $ | (388,380) | | $ | 3,726,398 |
Net loss | |
| — | |
| — | |
| — | |
| (18,889) | |
| — | |
| (18,889) |
Translation adjustments and other | |
| — | |
| — | |
| — | |
| — | |
| 90,373 | |
| 90,373 |
Pension liability adjustments, net | | | — | | | — | | | — | | | — | | | 9,623 | | | 9,623 |
Cash dividends | |
| — | |
| — | |
| — | |
| (20,756) | |
| — | |
| (20,756) |
Effects of new accounting principles, net | | | — | | | — | | | — | | | (14,480) | | | — | | | (14,480) |
Stock-based compensation | |
| 51 | | | 51 | | | 5,191 | | | — | | | — | | | 5,242 |
Balance, October 3, 2020 | |
| 98,844 | | $ | 98,844 | | $ | 1,599,331 | | $ | 2,367,720 | | $ | (288,384) | | $ | 3,777,511 |
Net income | |
| — | |
| — | |
| — | |
| 19,163 | |
| — | |
| 19,163 |
Translation adjustments and other | |
| — | |
| — | |
| — | |
| — | |
| 120,000 | |
| 120,000 |
Pension liability adjustments, net | | | — | | | — | | | — | | | — | | | 3,983 | | | 3,983 |
Cash dividends | |
| — | |
| — | |
| — | |
| (20,756) | |
| — | |
| (20,756) |
Stock-based compensation | |
| 18 | |
| 18 | |
| 10,814 | |
| — | |
| — | |
| 10,832 |
Balance, January 2, 2021 | | | 98,862 | | $ | 98,862 | | $ | 1,610,145 | | $ | 2,366,127 | | $ | (164,401) | | $ | 3,910,733 |
Net income | |
| — | |
| — | |
| — | |
| 107,484 | |
| — | |
| 107,484 |
Translation adjustments and other | |
| — | |
| — | |
| — | |
| — | |
| (65,021) | |
| (65,021) |
Pension liability adjustments, net | | | — | | | — | | | — | | | — | | | 3,983 | | | 3,983 |
Cash dividends | |
| — | |
| — | |
| — | |
| (20,888) | |
| — | |
| (20,888) |
Stock-based compensation | |
| 627 | |
| 627 | |
| 969 | |
| — | |
| — | |
| 1,596 |
Balance, April 3, 2021 | | | 99,489 | | $ | 99,489 | | $ | 1,611,114 | | $ | 2,452,723 | | $ | (225,439) | | $ | 3,937,887 |
| | | | | | | | | | | | | | | | | | |
|
| | |
| | |
| | |
| | |
| 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 |
Translation adjustments and other | |
| — | |
| — | |
| — | |
| — | |
| (102,146) | |
| (102,146) |
Pension liability adjustments, net | | | — | | | — | | | — | | | — | | | 3,813 | | | 3,813 |
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 |
Net income | |
| — | |
| — | |
| — | |
| 3,668 | |
| — | |
| 3,668 |
Translation adjustments and other | |
| — | |
| — | |
| — | |
| — | |
| 93,186 | |
| 93,186 |
Pension liability adjustments, net | | | — | | | — | | | — | | | — | | | 3,168 | | | 3,168 |
Cash dividends | |
| — | |
| — | |
| — | |
| (20,975) | |
| — | |
| (20,975) |
Repurchases of common stock | |
| (2,135) | |
| (2,135) | | | — | |
| (85,423) | | | — | |
| (87,558) |
Stock-based compensation | |
| 13 | |
| 13 | |
| 7,760 | |
| — | |
| — | |
| 7,773 |
Balance, December 28, 2019 | | | 99,349 | | $ | 99,349 | | $ | 1,588,466 | | $ | 2,575,536 | | $ | (306,018) | | $ | 3,957,333 |
Net loss | |
| — | |
| — | |
| — | |
| (128,661) | |
| — | |
| (128,661) |
Translation adjustments and other | |
| — | |
| — | |
| — | |
| — | |
| (96,351) | |
| (96,351) |
Pension liability adjustments, net | | | — | | | — | | | — | | | — | | | 3,167 | | | 3,167 |
Cash dividends | |
| — | |
| — | |
| — | |
| (20,810) | |
| — | |
| (20,810) |
Repurchases of common stock | |
| (1,104) | |
| (1,104) | | | — | |
| (35,640) | | | — | |
| (36,744) |
Stock-based compensation | |
| 516 | |
| 516 | |
| (1,172) | |
| — | |
| — | |
| (656) |
Balance, March 28, 2020 | | | 98,761 | | $ | 98,761 | | $ | 1,587,294 | | $ | 2,390,425 | | $ | (399,202) | | $ | 3,677,278 |
See notes to consolidated financial statements.
5
AVNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| | | | | | |
| | Nine Months Ended | ||||
|
| April 3, |
| March 28, | ||
| | 2021 | | 2020 | ||
| | (Thousands) | ||||
Cash flows from operating activities: | | | | | | |
Net income (loss) | | $ | 107,759 | | $ | (83,242) |
| | | | | | |
Non-cash and other reconciling items: | | | | | | |
Depreciation | |
| 67,462 | |
| 75,535 |
Amortization | |
| 35,730 | |
| 62,240 |
Amortization of operating lease assets | | | 42,054 | | | 46,560 |
Deferred income taxes | |
| 11,510 | |
| (42,529) |
Stock-based compensation | |
| 22,293 | |
| 20,757 |
Goodwill, long-lived asset and other impairments | |
| 15,166 | |
| 145,836 |
Other, net | |
| 7,558 | |
| 36,548 |
Changes in (net of effects from businesses acquired and divested): | | | | | | |
Receivables | |
| (405,700) | |
| 150,095 |
Inventories | |
| 63,017 | |
| 227,996 |
Accounts payable | |
| 224,151 | |
| (112,923) |
Accrued expenses and other, net | |
| 6,526 | |
| (84,263) |
Net cash flows provided by operating activities | |
| 197,526 | |
| 442,610 |
| | | | | | |
Cash flows from financing activities: | | | | | | |
Repayments under accounts receivable securitization, net | |
| — | |
| (127,400) |
Repayments under senior unsecured credit facility, net | | | (232,347) | |
| (1,194) |
Repayments under bank credit facilities and other debt, net | |
| (2,192) | |
| (1,639) |
Repurchases of common stock | |
| — | |
| (235,830) |
Dividends paid on common stock | |
| (62,400) | |
| (63,235) |
Other, net | |
| (11,455) | |
| (15,132) |
Net cash flows used for financing activities | |
| (308,394) | |
| (444,430) |
| | | | | | |
Cash flows from investing activities: | | | | | | |
Purchases of property, plant and equipment | |
| (39,001) | |
| (61,156) |
Acquisitions of assets | |
| (18,371) | |
| (51,509) |
Other, net | |
| 6,201 | |
| (12,547) |
Net cash flows used for investing activities | |
| (51,171) | |
| (125,212) |
| | | | | | |
Effect of currency exchange rate changes on cash and cash equivalents | |
| 7,750 | |
| (16,418) |
| | | | | | |
Cash and cash equivalents: | | | | | | |
— decrease | | | (154,289) | | | (143,450) |
— at beginning of period | | | 477,038 | | | 546,105 |
— at end of period | | $ | 322,749 | | $ | 402,655 |
See notes to consolidated financial statements.
6
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In the opinion of management, the accompanying unaudited interim consolidated financial statements contain all adjustments necessary to present fairly Avnet, Inc.’s and its consolidated subsidiaries’ (collectively, the “Company” or “Avnet”) financial position, results of operations, comprehensive income (loss) 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 U.S.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.estimates and assumptions.
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 July 1, 2017.June 27, 2020.
Certain reclassifications have been made in prior periods and the fiscal year to date current periods to conform to the current period presentation.
NewFiscal year
The Company operates on a “52/53 week” fiscal year, and fiscal 2021 contains 53 weeks compared to fiscal 2020, which contained 52 weeks. As a result, the first nine months of fiscal 2021 ended April 3, 2021, contained 40 weeks compared to the first nine months of fiscal 2020 ended March 28, 2020, which contained 39 weeks.
Recently adopted accounting pronouncements
In December 2017,August 2018, the SecuritiesFASB issued ASU No. 2018-15, Intangibles—Goodwill and Exchange CommissionOther— 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. The adoption of ASU No. 2018-15 in the first quarter of fiscal 2021 did not have a material impact on the Company’s consolidated financial statements.
In June 2016, the FASB issued Staff Accounting BulletinASU No. 1182016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU No. 2016-13") and also issued subsequent amendments to the initial guidance: ASU No. 2018-19, ASU No. 2019-04, ASU No. 2019-05, and ASU No. 2019-11 (collectively, Topic 326). Topic 326 revises the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. On June 28, 2020, the Company adopted Topic 326 using a modified retrospective approach with a cumulative effect adjustment to the opening balance of retained earnings, which increased the allowance for credit losses by $17.2 million ($14.5 million, net of tax of $2.7 million). Increases in the allowance for credit losses relate to the required change from an incurred loss model to an expected loss model, and the related change in timing of loss recognition where an allowance for credit losses is now applied at the time the asset, or pool of assets, is recognized.
7
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Recently issued accounting pronouncements
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“SAB 118”ASU No. 2020-04”), which provides optional guidance related to The Tax Cuts and Jobs Act (the “Act”). The Act changes existing United States tax law and includes numerous provisions that will affectease the potential burden in accounting for U.S. income taxes under ASC 740. SAB 118 allows registrantsreference rate reform on financial reporting. The new guidance provides optional expedients and exceptions for applying generally accepted accounting principles to record provisional amounts during a one year “measurement period”. The measurement period ends upon finalization of accounting. Duringtransactions affected by reference rate reform if certain criteria are met. In January 2021, the measurement period, impacts of the Act are expectedFASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope (“ASU No. 2021-01”), to be recorded at the time a reasonable estimateclarify certain optional expedients and exceptions in Topic 848 for all or a portion of the effects can be made,contract modifications and provisional amounts can be recognized and adjusted as information becomes available, prepared or analyzed. SAB 118 summarizes three stages of applying the impact of the Act to be applied at each reporting period, to account for and qualitatively disclose the accounting impacts of the Act: (i) the effects of the Act for which accounting is complete; (ii) provisional amounts (or adjustments to provisional amounts) for the effects of the Act where accounting is not complete, but that a reasonable estimate has been determined; and (3) a reasonable estimate cannot yet be made and therefore taxes are reflected in accordance with law prior to the enactment of the Act. See Note 8, “Income Taxes” for further discussion of the application of SAB 118 as of December 30, 2017.
In August 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2017-12, Derivatives and Hedging (Topic 815) - Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”), 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 the hedge accounting comparedapply to current GAAP. This update isderivatives that are affected by the discounting transition. Both ASU No. 2020-04 and ASU No. 2021-01 are effective for fiscal years beginning afterupon issuance through December 15, 2018, with early adoption permitted.31, 2022. The Company is currently evaluating the impacteffects of adopting the adoptionprovisions of ASU 2017-12 on its consolidated financial statements.
In March 2017, the FASB issued Accounting Standards Update 2017-07, Compensation—Retirement Benefits (Topic 715) - Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (“ASU 2017-07”). The new guidance requires the service cost component of net periodic benefit cost to be presented in the same income statement line item as other employee compensation costs arising from services rendered during the period, and allows only the service cost component to be eligible for capitalization in assets. Other components of the net periodic benefit cost are to be presented separately from the line item that includes the service cost and outside of any subtotal of operating income, and the line item must be appropriately described. If a separate line item is not used, the line item used in the income statement to present the other components of net benefit cost must be disclosed. The guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within that annual period, with early adoption permitted. The amendment is to be applied retrospectively. The new guidance primarily impacts the income statement
6
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
presentation of net periodic benefit cost and the CompanyNo. 2020-04, but does not believe adoption of this standard will havecurrently expect a material impact on itsthe Company’s consolidated financial statements including income before income taxes, but the reported amount of operating income will decrease compared to historical measurements of operating income. Refer to Note 9, “Pension Plan,” for further information on the components of net periodic pension cost.statements.
In October 2016,December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting Standards Update No. 2016-16, for Income Taxes (Topic(Topic 740): Intra-Entity Transfers of Assets Other Than Inventory (“ASU 2016-16”No. 2019-12”). The update, which removes certain exceptions to the general principles in Topic 740 and also clarifies and amends accountingexisting guidance for intra-entity transfers of assets other than inventory to require the recognition of income tax consequences when the transfer occurs. The update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. A modified retrospective approach should be applied. The Company is currently evaluating the impact of the adoption ofimprove consistent application. ASU 2016-16 on its consolidated financial statements.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). The update requires a lessee to recognize assets and liabilities on the consolidated balance sheets for leases with lease terms greater than 12 months. ASU 2016-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The update2019-12 will be effective for the Company in the first quarter of fiscal 2020, using2022, and early adoption is permitted. Depending on the amendment, adoption may be applied on a retrospective, modified retrospective approach.or prospective basis. The Company is currently evaluating the impactpotential effects of adopting the adoptionprovisions of ASU 2016-02 on its consolidated financial statements.No. 2019-12.
In May 2014,August 2018, the FASB issued Accounting Standards UpdateASU No. 2014-09, Revenue from Contracts with Customers, as amended (“2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans (“ASU 2014-09”No. 2018-14”), to supersede nearly all existing revenue recognition. The new guidance under GAAP. The core principles ofmodifies 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. ASU 2014-09 are to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected toNo. 2018-14 will be receivedeffective for those goods or services. Application of the guidance in ASU 2014-09 is expected to require more judgment and estimates within the revenue recognition process compared to existing GAAP. ASU 2014-09 is required to be adopted by the Company in the first quarter of fiscal 2019.
2022, and early adoption is permitted. The Company expects to adopt the requirements of ASU 2014-09 using retrospective adoption to each prior reporting period presented. The company has established an implementation team inclusive of external advisors engaged to assist in evaluating potential differences compared to existing GAAP. The Company has identified its revenue streams and is currently assessing each stream for potential impacts from theCompany’s planned adoption of ASU 2014-09. For the revenue streams assessed, the Company doesNo. 2018-14 is not anticipateexpected to have a material impact on the Company’s consolidated financial statements.
2. Summary of significant accounting policies
Except for the changes below, no material changes have been made to the Company’s significant accounting policies as disclosed in Note 1, Summary of Significant Accounting Policies, in its Annual Report on Form 10-K for the fiscal year ended June 27, 2020.
Receivables – Receivables, predominately comprised of trade accounts and notes receivable, are reported at amortized cost, net of the allowance for credit losses in the timing orconsolidated balance sheets. The allowance for credit losses is a valuation account that is deducted from the receivables’ amortized cost basis to present the net amount of revenue recognized.
The Company’s analysis and evaluation of the new standard will continue through its effective date and a substantial amount of work remains to be completed due to the complexity of the new standard, the application of judgment and the requirement for the use of estimates in applying the new standard, as well as the significant number of customers and the related terms and conditions of our contracts that must be reviewed. The Company does not currently expect significant changes in revenue recognition practices for continuing operations compared to existing GAAP.
Premier Farnell
On October 17, 2016, the Company acquired all of the outstanding shares of Premier Farnell Plc (“PF”), a global distributor of electronic components and related products. The cash consideration paid for the acquisition was approximately $841 million, which consisted of £1.85 per share of PF common stock. Additionally, Avnet assumed $242.8 million of debt at fair value.
The PF acquisition was accounted for as a business combination. The purchase price of this acquisition was allocated to the assets acquired and liabilities assumed based on their estimated fair values on the transaction date.
7
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table summarizes the final purchase price allocation (in thousands):
|
|
|
|
Cash |
| $ | 46,354 |
Trade and other receivables, net |
|
| 187,303 |
Inventories |
|
| 328,037 |
Property, plant and equipment |
|
| 52,621 |
Intangible assets |
|
| 319,966 |
Total identifiable assets acquired |
| $ | 934,281 |
|
|
|
|
Accounts payable, accrued liabilities and other current liabilities |
| $ | 160,572 |
Short-term debt |
|
| 242,814 |
Other long-term liabilities |
|
| 150,109 |
Total identifiable liabilities acquired |
| $ | 553,495 |
Net identifiable assets acquired |
|
| 380,786 |
Goodwill |
|
| 460,534 |
Net assets acquired |
| $ | 841,320 |
Approximately $10.0 million of goodwill associated with the PF acquisition is expected to be deductiblecollected. The Company estimates the allowance for tax purposes.credit losses using relevant available information about expected credit losses, including information about historical credit losses, past events, current conditions, and other factors which may affect the collectability of receivables. Adjustments to historical loss information are made for differences in current receivable specific risk characteristics such as changes in customer behavior, economic and industry changes, or other relevant factors. Expected credit losses are estimated on a pooled basis, when similar risk characteristics exist.
Dragon Innovation3. Acquisitions
In August 2017,the first quarter of fiscal 2021, the Company acquired Dragon Innovation, Inc. (“Dragon”), a provider of manufacturing logistics services to entrepreneurs.completed an asset acquisition. The impact of this asset acquisition was not material to the Company’s consolidated balance sheets or statements of operations.
3. Discontinued operations and gain on sale
In February 2017, the Company completed the sale of its Technology Solutions (“TS”) business to Tech Data Corporation (the “Buyer”). Included in the gain on sale recorded upon completion of the sale were estimates for certain income taxes due on the gain and additional cash consideration expected from the Buyer related to a closing date net working capital sales price adjustment (the “closing date adjustment”). The Company is finalizing the closing date adjustment with the Buyer as provided for in the sales agreement and has included an estimate of this amount as the principal component of the $269.2 million of prepaid and other current assets as of December 30, 2017. The final closing date adjustment, as determined through the established process outlined in the sales agreement, may be materially different from the Company’s estimate. The impact of any probable changes in the closing date adjustment will be recorded as an adjustment to the gain on sale from discontinued operations in the period such change occurs. Additionally, the income taxes associated with the gain will be impacted by the final geographic allocation of the sales price, which must be agreed to with the Buyer after determination of the closing date adjustment as required in the sales agreement and may be materially different from the Company’s estimates. The impact of any changes in estimated income taxes on the gain will be recorded as an adjustment to the gain on sale from discontinued operations in the period such change in estimate occurs. The Company expects the closing date adjustment to be finalized by the end of fiscal 2018 and the income tax on the gain to be finalized during fiscal 2019.
8
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
4. Receivables
The Company’s receivables and allowance for credit losses were as follows:
| | | | | | |
| | April 3, | | June 27, | ||
| | 2021 | | 2020 | ||
| | (Thousands) | ||||
Receivables | | $ | 3,451,466 | | $ | 2,993,404 |
Allowance for Credit Losses | | | (85,789) | | | (65,018) |
The Company received 2.8 million shares ofhad the Buyer’s common stock at closing (the “Shares”), which has been recorded within “Marketable securities” onfollowing activity in the Company’s Consolidated Balance Sheets. Unrealized and realized gains orallowance for credit losses due to changes in fair value based upon Level 1 quoted active market prices of the Shares are recorded in “Other income (expense), net” on the Consolidated Statements of Operations. The sales agreement includes time based contractual restrictions related to the Company’s sale of the Shares and as such, the Company entered into economic hedges to reduce the Company’s exposure to price fluctuations of the Shares during the restricted period, which fixes the net amount that the Company will realize upon the sale of the Shares. The Company records changes in fair value related to the economic share price hedges within “Other income (expense), net”, offsetting the changes in fair value of the underlying Shares. During the six months ended December 30, 2017, the Company sold 1.4 million Shares, the net proceeds of which have been included in “Cash flows from investing activities – discontinued operations.”
In connection with the sale of the TS business, the Company entered into a Transition Services Agreement (“TSA”), pursuant to which the Buyer will pay the Company to provide certain information technology, distribution, facilities, finance and human resources related services for various periods of time depending upon the services not to exceed approximately two years from the closing date. Expenses incurred by the Company to provide such services under the TSA are classified within selling, general and administrative expenses and amounts billed to the Buyer to provide such services are classified as a reduction of such expenses. The Buyer has terminated substantially all TSA services outside of certain information technology services and all remaining TSA services are expected to be terminated by the end of fiscal 2018.
Financial results of the TS business for the second quarter and six months ended December 31, 2016 are presented as “Income from discontinued operations, net of tax” on the Consolidated Statements of Operations and are summarized as follows:
|
|
|
|
|
|
|
|
|
| Second Quarter Ended |
| Six Months Ended |
| ||
|
| December 31, 2016 |
| ||||
|
| (Thousands) |
| ||||
Sales |
| $ | 2,453,262 |
| $ | 4,375,464 |
|
Cost of sales |
|
| 2,199,235 |
|
| 3,928,164 |
|
Gross profit |
|
| 254,027 |
|
| 447,300 |
|
Selling, general and administrative expenses |
|
| 158,356 |
|
| 324,381 |
|
Restructuring, integration and other expenses |
|
| 3,316 |
|
| 7,540 |
|
Operating income |
|
| 92,355 |
|
| 115,379 |
|
Interest and other expense, net |
|
| (10,635) |
|
| (10,630) |
|
Income from discontinued operations before income taxes |
|
| 81,720 |
|
| 104,749 |
|
Income tax expense |
|
| 10,967 |
|
| 32,841 |
|
Income from discontinued operations, net of taxes |
| $ | 70,753 |
| $ | 71,908 |
|
Included within selling, general and administrative expenses of discontinued operations was $14.1 million and $26.6 million of estimated corporate expenses, excluding general overhead, specific to or benefiting the TS business for the second quarter and six months ended December 31, 2016.
The loss from discontinued operations, net of tax, in the second quarter and first sixnine months of fiscal 2018 substantially all relates to settlement losses associated with the Company’s pension plan due to former TS business employees requesting and receiving distributions from the Company’s pension plan during fiscal 2018. Refer to Note 9, “Pension plan,” for further information on the pension settlement losses.2021:
| | | |
| | April 3, | |
| | 2021 | |
| | (Thousands) | |
Balance at June 27, 2020 | | $ | 65,018 |
Effect of adoption of new credit loss accounting standard (Note 1) | | | 17,205 |
Credit Loss Provisions | | | 7,370 |
Credit Loss Recoveries | | | (192) |
Receivables Write offs | | | (5,666) |
Foreign Currency Effect and Other | | | 2,054 |
Balance at April 3, 2021 | | $ | 85,789 |
9
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
4.5. Goodwill and long-livedintangible assets
Goodwill
The following table presents the change in goodwill by reportable segment for the sixnine months ended December 30, 2017. All of the accumulated impairment was recognized in fiscal 2009.April 3, 2021.
| | | | | | | | | |
|
| Electronic |
| |
| | | ||
| | Components | | Farnell | | Total | |||
| | (Thousands) | |||||||
Carrying value at June 27, 2020 (1) | | $ | 297,836 | | $ | 475,898 | | $ | 773,734 |
Foreign currency translation | |
| 12,142 | |
| 52,584 | |
| 64,726 |
Carrying value at April 3, 2021 (1) | | $ | 309,978 | | $ | 528,482 | | $ | 838,460 |
|
|
|
|
|
|
|
|
|
|
|
| Electronic |
| Premier |
|
|
| ||
|
| Components |
| Farnell |
| Total | |||
|
| (Thousands) | |||||||
Carrying value at July 1, 2017 (1) |
|
| 635,048 |
|
| 513,299 |
|
| 1,148,347 |
Additions from acquisitions |
|
| 21,539 |
|
| — |
|
| 21,539 |
Foreign currency translation |
|
| 6,263 |
|
| 17,662 |
|
| 23,925 |
Measurement period adjustments |
|
| 2,530 |
|
| (15,328) |
|
| (12,798) |
Carrying value at December 30, 2017 (1) |
| $ | 665,380 |
| $ | 515,633 |
| $ | 1,181,013 |
(1) |
| Includes accumulated impairment of $1,045,110 from fiscal 2009, $181,440 from fiscal 2018, $137,396 from fiscal 2019 and $118,731 from fiscal 2020. |
The Company’s reporting units passed goodwill impairment testing using a quantitative impairment model in the fourth quarter of fiscal 2017, however, the Company’s Electronic Components (“EC”) Americas reporting units had an estimated fair value that was not substantially in excess of its carrying value. The Company also evaluates each quarter if facts and circumstances indicate that it is more likely than not that the fair value of aits reporting unitunits is less than itstheir carrying value, which would require the Company to perform an interim goodwill impairment test. Indicators that 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 third quarter of fiscal 2021, the Company concluded that an interim goodwill impairment test was not required.
9
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Intangible Assets
The following table presents the Company’s acquired intangible assets at December 30, 2017,April 3, 2021 and July 1, 2017,June 27, 2020, respectively.
| | | | | | | | | | | | | | | | | | | |
| | April 3, 2021 | | June 27, 2020 |
| ||||||||||||||
| | Acquired | | Accumulated | | Net Book | | Acquired | | Accumulated | | Net Book |
| ||||||
|
| Amount |
| Amortization |
| Value |
| Amount(1) |
| Amortization |
| Value |
| ||||||
| | (Thousands) |
| ||||||||||||||||
Customer related | | $ | 324,923 | | $ | (312,189) | | $ | 12,734 | | $ | 300,937 | | $ | (266,759) | | $ | 34,178 | |
Trade name | |
| 57,259 | |
| (42,788) | |
| 14,471 | |
| 51,698 | |
| (32,493) | |
| 19,205 | |
Technology and other | |
| 57,756 | |
| (51,191) | |
| 6,565 | |
| 53,641 | |
| (41,587) | |
| 12,054 | |
| | $ | 439,938 | | $ | (406,168) | | $ | 33,770 | | $ | 406,276 | | $ | (340,839) | | $ | 65,437 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 30, 2017 |
| July 1, 2017 |
| ||||||||||||||
|
| Acquired |
| Accumulated |
| Net Book |
| Acquired |
| Accumulated |
| Net Book |
| ||||||
|
| Amount |
| Amortization |
| Value |
| Amount |
| Amortization |
| Value |
| ||||||
|
| (Thousands) |
| ||||||||||||||||
Customer related |
| $ | 308,024 |
| $ | (118,563) |
| $ | 189,461 |
| $ | 277,865 |
| $ | (79,578) |
| $ | 198,287 |
|
Trade name |
|
| 55,973 |
|
| (12,500) |
|
| 43,473 |
|
| 46,915 |
|
| (6,720) |
|
| 40,195 |
|
Technology and other |
|
| 54,354 |
|
| (17,545) |
|
| 36,809 |
|
| 50,369 |
|
| (11,560) |
|
| 38,809 |
|
|
| $ | 418,351 |
| $ | (148,608) |
| $ | 269,743 |
| $ | 375,149 |
| $ | (97,858) |
| $ | 277,291 |
|
(1)Acquired amount reduced by impairment of $17,473 from fiscal 2020.
10
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Intangible asset amortization expense from continuing operations was $21.8$5.3 million and $9.8$21.0 million for the secondthird quarters of fiscal 20182021 and 2017,2020, respectively, and $47.3$35.7 million and $11.8$62.2 million for the first sixnine months of fiscal 20182021 and 2017,2020, respectively. Intangible assets have a weighted average remaining useful life of approximately less than 3 years. The following table presents the estimated future amortization expense for the remainder of fiscal 2018,2021 and the next five fiscal years and thereafter (in thousands):
|
|
|
| |||
| | | | |||
Fiscal Year |
|
|
| | ||
Remainder of fiscal 2018 |
|
| 43,635 | |||
2019 |
|
| 85,765 | |||
2020 |
|
| 83,488 | |||
2021 |
|
| 40,226 | |||
Remainder of fiscal 2021 | | $ | 5,261 | |||
2022 |
|
| 12,685 | | | 15,431 |
2023 |
|
| 3,703 | |
| 6,610 |
2024 | |
| 3,156 | |||
2025 | |
| 1,472 | |||
2026 | |
| 1,472 | |||
Thereafter |
|
| 241 | |
| 368 |
Total |
| $ | 269,743 | | $ | 33,770 |
6. Debt
Short-term debt consists of the following (in(carrying balances in thousands):
| | | | | | | | | | | | | | |||||||||||||
| | April 3, | | June 27, | | April 3, | | June 27, | | |||||||||||||||||
| | 2021 |
| 2020 |
| 2021 |
| 2020 | | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
|
| December 30, 2017 |
| July 1, 2017 |
| December 30, 2017 |
| July 1, 2017 |
| |||||||||||||||||
|
| Interest Rate |
| Carrying Balance |
| |||||||||||||||||||||
| | Interest Rate | | Carrying Balance |
| |||||||||||||||||||||
Bank credit facilities and other |
| 2.41 | % |
| 2.27 | % |
| $ | 23,351 |
| $ | 50,113 |
| | 0.93 | % | | 5.69 | % | | $ | 43 | | $ | 51 | |
Accounts receivable securitization program |
| 1.93 | % |
| — |
|
|
| 220,000 |
|
| — |
| | — | | | — | | | | — | | | — | |
Public notes due December 2021 | | 3.75 | % | | — | | |
| 300,000 | |
| — | | |||||||||||||
Short-term debt |
|
|
|
|
|
|
| $ | 243,351 |
| $ | 50,113 |
| | | | | | | | $ | 300,043 | | $ | 51 | |
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.
10
TheAVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
In July 2020, the Company has anamended and extended for one year, its trade accounts receivable securitization program (the “Program”“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 $400$450 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 $730.8$683.3 million and $807.5$703.8 million at December 30, 2017,April 3, 2021 and July 1, 2017,June 27, 2020, respectively. The Securitization Program contains certain covenants relating to the quality of the receivables sold. The Program also requires the Company to maintain certain minimum interest coverage and leverage ratios, which the Company was in compliance with as of December 30, 2017, and July 1, 2017. The Program expires in August 2018 and as a result the Company has classified outstanding balances as short-term debt as of December 30, 2017. Interest on borrowings is calculated using a base rate or a commercial paperone-month LIBOR rate plus a spread of 0.40% with a1.05%. The facility fee on the unused balance of the facility is up to 0.40%.
11
TableDuring the third quarter of Contentsfiscal 2021, the Company committed to an early redemption of all $300 million of its outstanding 3.75% Public notes due December 2021. The loss on debt extinguishment, primarily related to a contractual make-whole premium, is expected to be approximately $5 million and will be classified as a component of other income (expense), net upon redemption of the notes, which is expected to occur on April 30, 2021.
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Long-term debt consists of the following (in(carrying balances in thousands):
| | | | | | | | | | | | | | |||||||||||||
| | April 3, | | June 27, | | April 3, | | June 27, | | |||||||||||||||||
| | 2021 |
| 2020 |
| 2021 |
| 2020 | | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
|
| December 30, 2017 |
| July 1, 2017 |
| December 30, 2017 |
| July 1, 2017 |
| |||||||||||||||||
|
| Interest Rate |
| Carrying Balance |
| |||||||||||||||||||||
| | Interest Rate | | Carrying Balance |
| |||||||||||||||||||||
Revolving credit facilities: |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | |
Accounts receivable securitization program |
| — |
|
| 1.53 | % |
| $ | — |
| $ | 142,000 |
| |||||||||||||
Credit Facility |
| — |
|
| 2.77 | % |
|
| — |
|
| 99,970 |
| |||||||||||||
Notes due: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
June 2020 |
| 5.88 | % |
| 5.88 | % |
|
| 300,000 |
|
| 300,000 |
| |||||||||||||
Credit Facility (due June 2023) | | — | | | 1.28 | % | | $ | — | | $ | 230,000 | | |||||||||||||
Public notes due: | | | | | | | | | | | | | | |||||||||||||
December 2021 |
| 3.75 | % |
| 3.75 | % |
|
| 300,000 |
|
| 300,000 |
| | — | | | 3.75 | % | | | — | | | 300,000 | |
December 2022 |
| 4.88 | % |
| 4.88 | % |
|
| 350,000 |
|
| 350,000 |
| | 4.88 | % | | 4.88 | % | |
| 350,000 | |
| 350,000 | |
April 2026 |
| 4.63 | % |
| 4.63 | % |
|
| 550,000 |
|
| 550,000 |
| | 4.63 | % | | 4.63 | % | | | 550,000 | | | 550,000 | |
Other long-term debt |
| 1.36 | % |
| 1.36 | % |
|
| 451 |
|
| 642 |
| | 1.21 | % | | 1.19 | % | |
| 1,312 | |
| 1,491 | |
Long-term debt before discount and debt issuance costs |
|
|
|
|
|
|
|
| 1,500,451 |
|
| 1,742,612 |
| | | | | | | |
| 901,312 | |
| 1,431,491 | |
Discount and debt issuance costs - unamortized |
|
|
|
|
|
|
|
| (12,385) |
|
| (13,400) |
| |||||||||||||
Discount and debt issuance costs – unamortized | | | | | | | |
| (5,399) | |
| (6,700) | | |||||||||||||
Long-term debt |
|
|
|
|
|
|
| $ | 1,488,066 |
| $ | 1,729,212 |
| | | | | | | | $ | 895,913 | | $ | 1,424,791 | |
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 $150.0$200.0 million of letters of credit and up to $300.0 million of loans in certain approved currencies, which expires in July 2019.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, which were amended during the first quarter of fiscal 2021, requiring the Company to maintain minimum interest coverage and leverage ratios, which the Company was in compliance with as of December 30, 2017,April 3, 2021, and July 1, 2017. June 27, 2020.
As of December 30, 2017,April 3, 2021, and July 1, 2017,June 27, 2020, there were $2.0$1.3 million and $3.1$1.6 million, respectively, in letters of credit issued under the Credit Facility.
As of December 30, 2017,April 3, 2021, the carrying value and fair value of the Company’s total debt was $1.73$1.20 billion and $1.80$1.28 billion, respectively. At July 1, 2017,June 27, 2020, the carrying value and fair value of the Company’s total debt was $1.78$1.42 billion and $1.85$1.52 billion, respectively. Fair value for the public notes was estimated based upon quoted market prices and for
11
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
other forms of debt fair value approximates carrying value due to the market based variable nature of the interest rates on those debt agreements.facilities.
7. Leases
6.
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 17 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):
| | | | | | | | | | | | |
| | Third Quarters Ended | | Nine Months Ended | ||||||||
| | April 3, | | March 28, | | April 3, | | March 28, | ||||
| | 2021 |
| 2020 | | 2021 |
| 2020 | ||||
Operating lease cost | | $ | 18,608 | | $ | 19,257 | | $ | 55,105 | | $ | 57,633 |
Variable lease cost | | | 5,584 | | | 5,496 | | | 17,296 | | | 15,594 |
Total lease cost | | $ | 24,192 | | $ | 24,753 | | $ | 72,401 | | $ | 73,227 |
Future minimum operating lease payments as of April 3, 2021, are as follows (in thousands):
| | | | |
Fiscal Year | | | | |
Remainder of fiscal 2021 | | $ | 18,649 | |
2022 | |
| 63,946 | |
2023 | |
| 54,508 | |
2024 | |
| 39,425 | |
2025 | |
| 32,493 | |
Thereafter | |
| 162,426 | |
Total future operating lease payments | | | 371,447 | |
Total imputed interest on operating lease liabilities | | | (64,157) | |
Total operating lease liabilities | | $ | 307,290 | |
Other information pertaining to operating leases as of April 3, 2021, consists of the following:
| | | |
Operating Lease Term and Discount Rate | | | |
Weighted-average remaining lease term in years | | 9.2 | |
Weighted-average discount rate | | 3.8 | % |
Supplemental cash flow information related to the Company’s operating leases was as follows (in thousands):
| | | | | | |
| | Nine Months Ended | ||||
| | April 3, | | March 28, | ||
| | 2021 |
| 2020 | ||
Supplemental Cash Flow Information: | | | | | ||
Cash paid for operating lease liabilities | | $ | 44,219 | | $ | 46,418 |
Operating lease assets obtained from new operating lease liabilities | | | 36,150 | | | 30,750 |
12
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
8. 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.year (“economic hedges”). 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“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 “other“Prepaid and other current assets” or “accrued“Accrued expenses and other,” as applicable, in the accompanying consolidated balance sheets as of December 30, 2017,April 3, 2021, and July 1, 2017.June 27, 2020. 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.
12
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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, Canadian Dollar, Japanese Yen, Chinese Yuan, Taiwan Dollar, Canadian Dollar and Mexican Peso. The Company also, to a lesser extent, has foreign operations transactions in other EuropeanEMEA and Asia/PacificAsian foreign currencies.
The fair values of derivative financial instrumentsforward foreign currency exchange contracts not receiving hedge accounting treatment recorded in the Company’s consolidated balance sheets are as follows:
|
|
|
|
|
|
|
|
|
| December 30, |
| July 1, |
| ||
|
| 2017 |
| 2017 |
| ||
|
| (Thousands) |
| ||||
Forward foreign currency exchange contracts not receiving hedge accounting treatment recorded in: |
|
|
|
|
|
|
|
Other current assets |
| $ | 4,380 |
| $ | 7,297 |
|
Accrued expenses |
|
| 2,489 |
|
| 4,142 |
|
| | | | | | | |
| | April 3, |
| June 27, |
| ||
| | 2021 | | 2020 | | ||
| | (Thousands) | | ||||
Prepaid and other current assets | | $ | 14,781 | | $ | 18,989 | |
Accrued expenses and other | | | 24,196 | | | 15,605 | |
In addition to amounts included in the above table, there was approximately $12.8 million and $34.0 million as of December 30, 2017 and July 1, 2017, respectively, of accrued expenses related to derivative financial instruments used to economically hedge the fair value changes in marketable securities discussed further in Note 3.
The amounts recorded to other income (expense), net, related to derivative financial instruments for economic hedges are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Second Quarters Ended |
| Six Months Ended |
| ||||||||
|
| December 30, |
| December 31, |
| December 30, |
| December 31, |
| ||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
|
| (Thousands) |
| ||||||||||
Net derivative financial instrument (loss) gain |
| $ | (1,361) |
| $ | 771 |
| $ | 1,715 |
| $ | (8,737) |
|
| | | | | | | | | | | | |
| | Third Quarters Ended | | Nine Months Ended | ||||||||
| | April 3, |
| March 28, |
| April 3, |
| March 28, | ||||
| | 2021 | | 2020 | | 2021 | | 2020 | ||||
| | (Thousands) | ||||||||||
Net derivative financial instrument (loss) gain | | $ | (2,574) | | $ | (3,247) | | $ | (13,201) | | $ | 7,856 |
The above table excludes approximately $27.0 million and $35.0 million for the second quarter and first six months of fiscal 2017, respectively, of derivative financial instrument losses in other income (expenses), net, associated with foreign currency derivative financial instruments purchased to economically hedge the British Pound purchase price of the PF acquisition.
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 and as the remeasurement of the underlying assets or liabilities being economically hedged.
13
7.AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
9. 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.
13
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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.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, for suchparticularly with regard to matters due primarily to being in the early stages of the related proceedings and investigations.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 one reporting period.
As of December 30, 2017April 3, 2021, and July 1, 2017,June 27, 2020, the Company had aggregate estimated liabilities of $14.2$14.7 million and $18.8 million, respectively, classified within accrued expenses and other for such compliance-related matters that were reasonably estimable as of such dates.
During the second quarterfirst nine months of fiscal 2018,2021, the Company made certain estimates related to the impactrecorded a gain on legal settlement of the Act including the remeasurement$8.2 million, which is classified as a component of deferredRestructuring, integration and other expenses.
10. Income taxes at the new expected tax rates. The amounts recorded in the three months ended December 30, 2017 for the remeasurement of U.S. net deferred tax assets principally relate to the reduction in the U.S. corporate income tax rate. The Company has provisionally recorded an expense of $11.1 million to account for these deferred tax impacts. This estimate is provisional as the Company continues to analyze the impacts of the Act, or in certain cases, U.S. Treasury is expected to issue further guidance on the application of certain provisions of the Act.
The Act includes a one-time mandatory repatriation transition tax on certain net accumulated earnings and profits of the Company’s foreign subsidiaries. The Company was not able to make a reasonable estimate of the income tax expense associated with the Company’s approximately $3.3 billion of unremitted foreign earnings as of July 1, 2017, as the required information related to each foreign subsidiaries’ unremitted foreign earnings and related foreign tax credit pools was not readily available. We expect a reasonable estimate to be recorded by the end of fiscal 2018 and the accounting for this aspect of the Act to be complete by the end of the measurement period. As of December 30, 2017, consistent with historical conclusions, the Company’s cash balances held in foreign locations are expected to be permanently reinvested outside the United States as the impact of the Act on the Company’s current position is not yet fully understood and is still under evaluation by the Company.
The Company’s effective tax rate on its income before income taxes from continuing operations was 8.6%a benefit of 53.3% in the secondthird quarter of fiscal 2018.2021. During the secondthird quarter of fiscal 2018,2021, the Company’s effective tax rate was favorably impacted primarily by (i) the tax benefit arising from the reduction in value of certain businesses for income tax purposes and (ii) decreases to valuation allowances, partially offset by (iii) increases to unrecognized tax benefit reserves.
During the third quarter of fiscal 2020, the Company’s effective tax rate on its loss before taxes was a benefit of 18.6%. During the third quarter of fiscal 2020, the Company’s effective tax rate was unfavorably impacted primarily by (i) the impairment of goodwill that is not deductible for tax purposes, partially offset by (ii) the release of unrecognized tax benefit reserves net of settlements.
For the first nine months of fiscal 2021, the Company’s effective tax rate on its income before taxes was a benefit of 32.7%. The effective tax rate for the first nine months of fiscal 2021 was favorably impacted primarily by (i) the tax benefit arising from the reduction in value of certain businesses for income tax purposes, (ii) decreases to valuation allowances, and (iii) the mix of income in lower tax jurisdictions, partially offset by the(iv) increases to unrecognized tax expense created from remeasuring net deferred tax assets as a result of applying the requirements of the Act. benefit reserves.
During the second quarter of fiscal 2017, the Company’s effective tax rate of 46.7% was unfavorably impacted primarily by (i) net increases to valuation allowances against deferred tax assets created primarily from acquisition related expenses that were deemed unrealizable and (ii) the impact of non-deductible acquisition related expenses, partially offset by (iii) the mix of income in lower tax jurisdictions.
For the first sixnine months of fiscal 20182020, the Company’s effective tax rate on its incomeloss before income taxes from continuing operations was 7.0%a benefit of 26.6%. The effective tax rate for the first sixnine months of fiscal 20182020 was favorably impacted primarily by (i) the release of unrecognized tax benefit reserves net of settlements and (ii) the mix of income in lower tax jurisdictions, and (ii) the release of unrecognized tax benefit reserves primarily due to the negotiation of a favorable outcome in a foreign jurisdiction, partially offset by (iii) thegoodwill impairment expense that is not deductible for tax expense created from remeasuring net deferred tax assets aspurposes and (iv) a result of applying the requirements of the Act.
During the first six months of fiscal 2017, the Company’s effective tax rate of33.0% was unfavorably impacted primarily by (i) net increases to valuation allowancesallowance against deferred tax assets that were deemed unrealizable and (ii) the impact of non-deductible acquisition related expenses, partially offset by (iii) the mix of income in lower tax jurisdictions.assets.
14
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company has a noncontributory defined benefit pension plan (the “Plan”) that covers substantially all current or former U.S. employees as of January 1, 2018, and an acquired closed noncontributory defined benefit pension plan in the U.S. covering certain PF employees (collectively, the “Plans”(the “Plan”). Components of net periodperiodic pension cost for the Plans werePlan was as follows:
| | | | | | | | | | | | | |||||||||||||
| | Third Quarters Ended | | Nine Months Ended | |||||||||||||||||||||
|
| April 3, |
| March 28, |
| April 3, |
| March 28, | |||||||||||||||||
| | 2021 |
| 2020 |
| 2021 |
| 2020 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
| Second Quarters Ended |
| Six Months Ended |
| ||||||||||||||||||||
|
| December 30, |
| December 31, |
| December 30, |
| December 31, |
| ||||||||||||||||
|
| 2017 |
| 2016 (1) |
| 2017 |
| 2016 (1) |
| ||||||||||||||||
|
| (Thousands) |
| ||||||||||||||||||||||
| | (Thousands) | |||||||||||||||||||||||
Service cost |
| $ | 3,867 |
| $ | 10,848 |
| $ | 7,735 |
| $ | 21,696 |
| | $ | 3,938 | | $ | 3,786 | | $ | 11,813 | | $ | 11,358 |
Total net periodic pension cost within selling, general and administrative expenses | | | 3,938 | | | 3,786 | | | 11,813 | | | 11,358 | |||||||||||||
| | | | | | | | | | | | | |||||||||||||
Interest cost |
|
| 5,783 |
|
| 3,774 |
|
| 11,566 |
|
| 7,548 |
| |
| 3,976 | |
| 5,638 | |
| 11,928 | |
| 16,914 |
Expected return on plan assets |
|
| (13,757) |
|
| (10,588) |
|
| (27,514) |
|
| (21,176) |
| |
| (12,421) | |
| (12,668) | |
| (37,261) | |
| (38,003) |
Amortization of prior service credits |
|
| (393) |
|
| (393) |
|
| (786) |
|
| (786) |
| ||||||||||||
Amortization of prior service cost | |
| 75 | |
| 534 | |
| 226 | |
| 1,603 | |||||||||||||
Recognized net actuarial loss |
|
| 3,746 |
|
| 3,851 |
|
| 7,492 |
|
| 7,702 |
| |
| 5,151 | |
| 3,658 | |
| 15,453 | |
| 10,972 |
Pension settlement charge |
|
| 13,984 |
|
| — |
|
| 13,984 |
|
| — |
| ||||||||||||
Total net periodic pension benefit within other income (expense), net | | | (3,219) | | | (2,838) | | | (9,654) | | | (8,514) | |||||||||||||
| | | | | | | | | | | | | |||||||||||||
Net periodic pension cost |
| $ | 13,230 |
| $ | 7,492 |
| $ | 12,477 |
| $ | 14,984 |
| | $ | 719 | | $ | 948 | | $ | 2,159 | | $ | 2,844 |
|
|
The Company contributed $8.0made $12.0 million to the Plans of contributions during the first sixnine months of fiscal 20182021 and expects to make an additional contributioncontributions to the PlansPlan of $8.0$4.0 million in the remainder of fiscal 2018.2021.
The Plans meet the definition of defined benefit plans and as a result, the Company applies ASC 715 pension accounting to the Plans. The Plans, however, are cash balance plans that are similar in nature to defined contribution plans in that a participant’s benefit is defined in terms of stated account balances. The cash balance plans provides the Company with the benefit of applying any earnings on the Plan’s investments beyond the fixed return provided to participants, toward the Company’s future cash funding obligations.
Amounts reclassified out of accumulated other comprehensive income (loss), net of tax, to operating expenses during the second quarters and the first six months of fiscal 2018 and fiscal 2017 were not material and substantially all related to net periodic pension costs including recognition of actuarial losses and amortization of prior service credits.
In connection with the sale of the TS business, a significant number of former employees became terminated vested employees under the Plan. During the second quarter of fiscal 2018, the aggregate amount of former employee withdrawals from the Plan exceeded the pension accounting threshold for fiscal 2018, which required a settlement charge under ASC 715 pension accounting. As a result, the Company recognized a $14.0 million pension settlement charge before taxes in the second quarter of fiscal 2018 classified within loss from discontinued operations.
15
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Share repurchase program
In November 2017,August 2019, the Company’s Board of Directors authorized a $200 million increase inamended the Company’s existing share repurchase program. With this increase,program, increasing the Company may repurchase upcumulative total of authorized share repurchases to $1.95$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, expected liquidity, expected compliance with financial debt convents, corporate and regulatory requirements, and prevailing market conditions. During the secondthird quarter and six months ended December 30, 2017,April 3, 2021, the Company repurchased 1.7 million and 3.6 milliondid not repurchase any shares respectively, under this program for a total cost of $67.4 million and $139.4 million, respectively.program. As of December 30, 2017,April 3, 2021, the Company had $459.6$469.0 million remaining under its share repurchase authorization.
Common stock dividend
In November 2017,February 2021, the Company’s Board of Directors approved a dividend of $0.18$0.21 per common share and dividend payments of $21.6$20.9 million were made in December 2017. During the six months ended December 31, 2017, the Company paid dividends of $0.36 per common share and $43.6 million in total.March 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Second Quarters Ended |
| Six Months Ended |
| ||||||||
|
| December 30, |
| December 31, |
| December 30, |
| December 31, |
| ||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
|
| (Thousands, except per share data) |
| ||||||||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
| $ | 56,794 |
| $ | 32,465 |
| $ | 114,976 |
| $ | 100,153 |
|
Income (loss) from discontinued operations |
|
| (10,070) |
|
| 70,753 |
|
| (9,949) |
|
| 71,908 |
|
Net income |
| $ | 46,724 |
| $ | 103,218 |
| $ | 105,027 |
| $ | 172,061 |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares for basic earnings per share |
|
| 120,400 |
|
| 127,901 |
|
| 121,543 |
|
| 127,716 |
|
Net effect of dilutive stock based compensation awards |
|
| 1,349 |
|
| 2,446 |
|
| 1,324 |
|
| 2,339 |
|
Weighted average common shares for diluted earnings per share |
|
| 121,749 |
|
| 130,347 |
|
| 122,867 |
|
| 130,055 |
|
Basic earnings per share - continuing operations |
| $ | 0.47 |
| $ | 0.25 |
| $ | 0.94 |
| $ | 0.78 |
|
Basic earnings (loss) per share - discontinued operations |
|
| (0.08) |
|
| 0.55 |
|
| (0.08) |
|
| 0.56 |
|
Basic earnings per share |
| $ | 0.39 |
| $ | 0.80 |
| $ | 0.86 |
| $ | 1.34 |
|
Diluted earnings per share - continuing operations |
| $ | 0.47 |
| $ | 0.25 |
| $ | 0.93 |
| $ | 0.77 |
|
Diluted earnings (loss) per share - discontinued operations |
|
| (0.08) |
|
| 0.54 |
|
| (0.08) |
|
| 0.55 |
|
Diluted earnings per share |
| $ | 0.39 |
| $ | 0.79 |
| $ | 0.85 |
| $ | 1.32 |
|
Stock options excluded from earnings per share calculation due to anti-dilutive effect |
|
| 1,508 |
|
| 7 |
|
| 1,508 |
|
| 7 |
|
See Note 3 for additional information on income (loss) from discontinued operations.
1615
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
13. Earnings per share
12.
| | | | | | | | | | | | |
| | Third Quarters Ended | | Nine Months Ended | ||||||||
|
| April 3, | | March 28, | | April 3, | | March 28, | ||||
| | 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
| | (Thousands, except per share data) | ||||||||||
Numerator: | | | |
| | | | | | | | |
Net income (loss) | | $ | 107,484 | | $ | (128,661) | | $ | 107,759 | | $ | (83,242) |
| | | | | | | | | | | | |
Denominator: | | | | | | | | | | | | |
Weighted average common shares for basic earnings per share | |
| 99,542 | |
| 99,479 | |
| 99,125 | |
| 101,013 |
Net effect of dilutive stock-based compensation awards | |
| 705 | |
| — | |
| 888 | |
| — |
Weighted average common shares for diluted earnings per share | |
| 100,247 | |
| 99,479 | |
| 100,013 | |
| 101,013 |
Basic earnings (loss) per share | | $ | 1.08 | | $ | (1.29) | | $ | 1.09 | | $ | (0.82) |
Diluted earnings (loss) per share | | $ | 1.07 | | $ | (1.29) | | $ | 1.08 | | $ | (0.82) |
Stock options excluded from earnings per share calculation due to anti-dilutive effect | | | 642 | | | 1,431 | | | 793 | | | 1,018 |
For the three and nine months ended March 28, 2020, the diluted net loss per share is the same as basic net loss per share as the effect of all potential common shares would be anti-dilutive.
14. Additional cash flow information
Non-cash investing and financing activities and supplemental cash flow information were as follows:
| | | | | | | ||||||||
| | Nine Months Ended | | |||||||||||
|
| April 3, |
| March 28, | | |||||||||
| | 2021 | | 2020 | | |||||||||
|
|
|
|
|
|
|
| |||||||
|
| Six Months Ended |
| |||||||||||
|
| December 30, |
| December 31, |
| |||||||||
|
| 2017 |
| 2016 |
| |||||||||
|
| (Thousands) |
| |||||||||||
| | (Thousands) | | |||||||||||
Non-cash Investing Activities: |
|
|
|
|
|
|
| | | | | | | |
Capital expenditures incurred but not paid |
| $ | 17,765 |
| $ | 8,661 |
| | $ | 5,232 | | $ | 5,366 | |
Non-cash Financing Activities: |
|
|
|
|
|
|
| |||||||
Unsettled share repurchases |
| $ | 3,971 |
|
| — |
| |||||||
Supplemental Cash Flow Information: |
|
|
|
|
|
|
| | | | | | | |
Interest |
| $ | 48,061 |
| $ | 61,062 |
| | $ | 61,127 | | $ | 88,472 | |
Income taxes |
| $ | 65,245 |
| $ | 67,200 |
| |||||||
Income tax net payments | | | 56,135 | | | 14,689 | |
Included in cash and cash equivalents as of December 30, 2017,April 3, 2021 and July 1, 2017,June 27, 2020 was $5.2$43.2 million and $208.3$20.9 million, respectively, of cash equivalents, which was primarily comprised of investment grade money market funds and overnight time deposits.
16
13.AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Electronic Components (“EC”) and Premier Farnell (“PF”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. PF was acquired during the second quarter of the prior year andFarnell distributes electronic components and related products to the electronic system design community utilizing multi-channel sales and marketing resources.
| | | | | | | | | | | | |
| | Third Quarters Ended | | Nine Months Ended | ||||||||
| | April 3, | | March 28, | | April 3, | | March 28, | ||||
| | 2021 |
| 2020 | | 2021 | | 2020 | ||||
|
| (Thousands) | ||||||||||
Sales: |
| |
|
| |
|
| |
|
| |
|
Electronic Components | | $ | 4,520,608 | | $ | 3,974,669 | | $ | 13,245,143 | | $ | 12,472,484 |
Farnell | | | 396,106 | | | 335,149 | | | 1,062,802 | | | 1,002,148 |
| | | 4,916,714 | | | 4,309,818 | | | 14,307,945 | | | 13,474,632 |
Operating income (loss): | | | | | | | | | | | | |
Electronic Components | | $ | 118,565 | | $ | 84,841 | | $ | 306,927 | | $ | 290,271 |
Farnell | | | 23,861 | | | 23,350 | | | 50,412 | | | 65,109 |
| | | 142,426 | | | 108,191 | | | 357,339 | | | 355,380 |
Corporate | | | (31,885) | | | (37,833) | | | (102,114) | | | (95,416) |
Restructuring, integration and other expenses | |
| (17,574) | |
| (19,211) | |
| (55,943) | | | (58,073) |
Goodwill and long-lived asset impairment expense | | | — | | | (145,836) | | | — | | | (145,836) |
Amortization of acquired intangible assets and other | | | (5,283) | | | (21,071) | | | (35,875) | | | (62,603) |
Operating income (loss) | | $ | 87,684 | | $ | (115,760) | | $ | 163,407 | | $ | (6,548) |
| | | | | | | | | | | | |
Sales, by geographic area: | | | | | | | | | | | | |
Americas (1) | | $ | 1,160,973 | | $ | 1,203,605 | | $ | 3,468,118 | | $ | 3,605,944 |
EMEA (2) | |
| 1,585,631 | |
| 1,512,476 | |
| 4,412,652 | |
| 4,409,258 |
Asia/Pacific (3) | |
| 2,170,110 | |
| 1,593,737 | |
| 6,427,175 | |
| 5,459,430 |
Sales | | $ | 4,916,714 | | $ | 4,309,818 | | $ | 14,307,945 | | $ | 13,474,632 |
(1) | Includes sales from the United States of $1.08 billion and $1.11 billion for the third quarters ended April 3, 2021, and March 28, 2020, respectively. Includes sales from the United States of $3.24 billion and $3.37 billion for the first nine months of fiscal 2021 and 2020, respectively. |
(2) | Includes sales from Germany and Belgium of $619.4 million and $276.4 million, respectively, for the third quarter ended April 3, 2021; and $1.71 billion and $825.8 million, respectively, for the first nine months of fiscal 2021. Includes sales from Germany and Belgium of $568.0 million and $278.3 million, respectively, for the third quarter ended March 28, 2020; and $1.69 billion and $837.7 million, respectively, for the first nine months of fiscal 2020. |
(3) | Includes sales from China (including Hong Kong), Taiwan and Singapore of $717.7 million, $956.8 million and $249.5 million, respectively, for the third quarter ended April 3, 2021; and $2.02 billion, $2.95 billion and $774.1 million, respectively, for the first nine months of fiscal 2021. Includes sales from China (including Hong Kong), Taiwan and Singapore of $524.1 million, $649.7 million and $239.3 million, respectively, for the third quarter ended March 28, 2020; and $1.76 billion, $2.39 billion and $722.7 million, respectively, for the first nine months of fiscal 2020. |
17
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Second Quarters Ended |
| Six Months Ended |
| ||||||||
|
| December 30, |
| December 31, |
| December 30, |
| December 31, |
| ||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
|
| (Thousands) |
| ||||||||||
Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronic Components |
| $ | 4,163,519 |
| $ | 4,004,342 |
| $ | 8,470,769 |
| $ | 8,122,446 |
|
Premier Farnell |
|
| 358,117 |
|
| 269,217 |
|
| 711,809 |
|
| 269,217 |
|
|
|
| 4,521,636 |
|
| 4,273,559 |
|
| 9,182,578 |
|
| 8,391,663 |
|
Operating income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronic Components |
| $ | 129,848 |
| $ | 166,705 |
| $ | 269,449 |
| $ | 351,756 |
|
Premier Farnell |
|
| 35,630 |
|
| 23,974 |
|
| 70,425 |
|
| 23,974 |
|
|
|
| 165,478 |
|
| 190,679 |
|
| 339,874 |
|
| 375,730 |
|
Corporate (1) |
|
| (19,821) |
|
| (26,220) |
|
| (52,283) |
|
| (49,910) |
|
Restructuring, integration and other expenses |
|
| (36,762) |
|
| (30,400) |
|
| (83,156) |
|
| (59,869) |
|
Amortization of acquired intangible assets and other |
|
| (21,877) |
|
| (9,829) |
|
| (47,462) |
|
| (12,207) |
|
Operating Income |
| $ | 87,018 |
| $ | 124,230 |
|
| 156,973 |
|
| 253,744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales, by geographic area: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas (2) |
| $ | 1,210,251 |
| $ | 1,252,606 |
| $ | 2,395,735 |
| $ | 2,503,114 |
|
EMEA (3) |
|
| 1,506,015 |
|
| 1,380,694 |
|
| 3,199,000 |
|
| 2,645,988 |
|
Asia/Pacific (4) |
|
| 1,805,370 |
|
| 1,640,259 |
|
| 3,587,843 |
|
| 3,242,561 |
|
Sales |
| $ | 4,521,636 |
| $ | 4,273,559 |
| $ | 9,182,578 |
| $ | 8,391,663 |
|
(1)Corporate is not a reportable segment and represents certain centrally incurred overhead expenses and assets that are not included in the EC and PF measures of profitability or assets. Corporate amounts represent a reconciling item between segment measures and total Avnet amounts reported in the consolidated financial statements.
(2)Includes sales from the United States of $1.12 billion and $1.16 billion for the second quarters ended December 30, 2017, and December 31, 2016, respectively. Includes sales from the United States of $2.21 billion and $2.38 billion for the first six months of fiscal 2018 and 2017, respectively.
(3)Includes sales from Germany and Belgium of $571.3 million and $242.4 million, respectively, for the second quarter ended December 30, 2017, and $1.25 billion and $504.9 million, respectively, for the first six months of fiscal 2018. Includes sales from Germany and Belgium of $518.7 million and $227.5 million, respectively, for the second quarter ended December 31, 2016, and $1.04 billion and $430.2 million, respectively, for the first six months of fiscal 2017.
(4)Includes sales from China (including Hong Kong), Taiwan and Singapore of $639.8 million, $715.3 million and $217.3 million, respectively, for the second quarter ended December 30, 2017, and $1.30 billion, $1.37 billion and $446.2 million, respectively, for the first six months of fiscal 2018. Includes sales from China (including Hong Kong), Taiwan and Singapore of $611.8 million, $597.1 million and $220.6 million, respectively, for the second quarter ended December 31, 2016, and $1.24 billion, $1.19 billion and $453.0 million, respectively, for the first six months of fiscal 2017.
| | | | | | | |
| | April 3, | | June 27, |
| ||
| | 2021 | | 2020 |
| ||
|
| (Thousands) | | ||||
Property, plant, and equipment, net, by geographic area: | | | | | | | |
Americas (1) | | $ | 155,834 | | $ | 183,892 | |
EMEA (2) | |
| 187,837 | |
| 183,382 | |
Asia/Pacific | |
| 37,412 | |
| 37,333 | |
Property, plant, and equipment, net | | $ | 381,083 | | $ | 404,607 | |
18
(1) | Includes property, plant and equipment, net, of $152.3 million and $179.4 million as of April 3, 2021, and June 27, 2020, respectively, in the United States. |
(2) | Includes property, plant and equipment, net, of $80.2 million, $83.3 million and $21.3 million in Germany, the United Kingdom and Belgium, respectively, as of April 3, 2021; and $84.9 million, $72.7 million and $22.4 million in Germany, the United Kingdom and Belgium, respectively, as of June 27, 2020. |
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
|
|
|
|
|
|
|
|
|
| December 30, |
| July 1, |
| ||
|
| 2017 |
| 2017 |
| ||
|
| (Thousands) |
| ||||
Property, plant, and equipment, net, by geographic area: |
|
|
|
|
|
|
|
Americas (1) |
| $ | 274,138 |
| $ | 296,038 |
|
EMEA (2) |
|
| 196,663 |
|
| 186,127 |
|
Asia/Pacific |
|
| 36,891 |
|
| 37,410 |
|
Property, plant, and equipment, net |
| $ | 507,692 |
| $ | 519,575 |
|
(1)Includes property, plant and equipment, net, of $268.8 million and $289.1 million as of December 30, 2017, and July 1, 2017, respectively, in the United States.
(2)Includes property, plant and equipment, net, of $96.2 million, $50.5 million and $41.1 million in Germany, UK and Belgium, respectively, as of December 30, 2017, and $85.6 million, $52.1 million and $39.8 million in Germany, UK and Belgium, respectively, as of July 1, 2017.
Fiscal 20182021
During fiscal 2018,2021, the Company executed certainundertook restructuring actions in an effort to integrate acquisitionsimprove operating efficiencies and reduce future operating expenses. Restructuring expenses are included as a component of restructuring, integration and other expenses in the consolidated statements of operations. The activity related to the restructuring liabilities associated with restructuring activities established during fiscal 20182021 is presented in the following table:
| | | | | | | | | | ||||||||||||||||
| | | | | Facility | | | ||||||||||||||||||
|
| | |
| and Contract |
| | ||||||||||||||||||
| | Severance |
| Exit Costs |
| Total | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
|
|
|
| Facility |
|
| Asset |
|
|
|
|
|
|
| ||||||||||
|
| Severance |
| Exit Costs |
| Impairments |
| Other |
| Total |
| ||||||||||||||
|
| (Thousands) |
|
|
|
| |||||||||||||||||||
Fiscal 2018 restructuring expenses |
| $ | 32,976 |
|
| 157 |
|
| 936 |
|
| 120 |
| $ | 34,189 |
| |||||||||
| | (Thousands) | |||||||||||||||||||||||
Fiscal 2021 restructuring expenses | | $ | 36,992 | | $ | 2,894 | | $ | 39,886 | ||||||||||||||||
Cash payments |
|
| (19,253) |
|
| (26) |
|
| — |
|
| (73) |
|
| (19,352) |
| |
| (21,097) | | | (1,497) | | | (22,594) |
Non-cash amounts |
|
| — |
|
| — |
|
| (936) |
|
| — |
|
| (936) |
| |
| — | | | (56) | | | (56) |
Other, principally foreign currency translation |
|
| 25 |
|
| 4 |
|
| — |
|
| — |
|
| 29 |
| |
| 570 | | | 13 | | | 583 |
Balance at December 30, 2017 |
| $ | 13,748 |
| $ | 135 |
| $ | — |
| $ | 47 |
| $ | 13,930 |
| |||||||||
Balance at April 3, 2021 | | $ | 16,465 | | $ | 1,354 | | $ | 17,819 |
Severance expense recorded in the first sixnine months of fiscal 20182021 related to the reduction, or planned reduction, of approximately 600over 300 employees, primarily in executive management, operations, information technology, warehouse, sales and business support functions. Facility exit costs primarily consist of liabilities for remaining lease obligations for exited facilities. Asset impairments relate to the impairment of property, plant and equipment as a result of the underlying restructuring activities. Other restructuring costs related primarily to other miscellaneous restructuring and exit costs. Of the $34.2$39.9 million in restructuring expenses recorded during the first sixnine months of fiscal 2018, $28.72021, $22.5 million related to EC, $4.2$9.4 million related to PFFarnell and $1.3$8.0 million related to corporate executive and business support functions.Corporate. The Company expects the majority of the remaining severance amounts to be paid by the end of fiscal 2018.2021.
1918
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Fiscal 2020 and prior
Fiscal 2017
During fiscal 2017,2020 and prior, the Company incurred restructuring expenses related to various restructuring actions intended to achieve planned synergies from acquired businesses and to reduce future operating expenses. The following table presents the activity during the first sixnine months of fiscal 20182021 related to the remaining restructuring liabilities from continuing operations established during fiscal 2017:2020 and prior:
| | | | | | | | | |
| | | | | Facility | | | ||
|
| | |
| and Contract |
| | ||
| | Severance |
| Exit Costs |
| Total | |||
| | (Thousands) | |||||||
Balance at June 27, 2020 | | $ | 13,574 | | $ | 3,368 | | $ | 16,942 |
Cash payments | |
| (5,569) | | | (1,042) | | | (6,611) |
Changes in estimates, net | | | (2,901) | | | 10 | | | (2,891) |
Other, principally foreign currency translation | |
| 579 | | | 216 | | | 795 |
Balance at April 3, 2021 | | $ | 5,683 | | $ | 2,552 | | $ | 8,235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Facility |
|
|
| |
|
| Severance |
| Exit Costs |
| Total | |||
|
| (Thousands) | |||||||
Balance at July 1, 2017 |
| $ | 12,186 |
| $ | 76 |
| $ | 12,262 |
Cash payments |
|
| (8,198) |
|
| (78) |
|
| (8,276) |
Changes in estimates, net |
|
| (1,056) |
|
| — |
|
| (1,056) |
Non-cash amounts |
|
| — |
|
| — |
|
| — |
Other, principally foreign currency translation |
|
| 146 |
|
| 2 |
|
| 148 |
Balance at December 30, 2017 |
| $ | 3,078 |
| $ | — |
| $ | 3,078 |
The Company expects the majority of the remaining amounts to be paid by the end of fiscal 2018.2021.
2019
This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) with respect to the financial condition, results of operations and business of the Company. You can find many of these statements by looking for words like “believes,” “plans,” “expects,” “anticipates,” “should,” “will,” “may,” “estimates” or similar expressions in this Quarterly Report or in documents incorporated by reference in this Quarterly Report. These forward-looking statements are subject to numerous assumptions, risks and uncertainties. You should understand that the following important factors, in addition to those discussed elsewhere in this Quarterly Report, the Company’s Quarterly Reports on Form 10-Q for the fiscal quarters ended October 3, 2020, and January 3, 2021 and the Company’s Annual Report on Form 10-K for the fiscal year ended June 27, 2020, could affect the Company’s future results of operations, and could cause those results or other outcomes to differ materially from those expressed or implied in the forward-looking statements: the scope and duration of the COVID-19 pandemic and its impact on global economic systems, access to financial markets and the Company’s employees, operations, customers, and supply chain; competitive pressures among distributors of electronic components; an industry down-cycle in semiconductors; relationships with key suppliers and allocations of products by suppliers; risks relating to the Company’s international sales and operations, including risks relating to the ability to repatriate cash, foreign currency fluctuations, duties and taxes, and compliance with international and U.S. laws; risks relating to acquisitions, divestitures and investments; adverse effects on the Company’s supply chain, operations of its distribution centers, shipping costs, third-party service providers, customers and suppliers, including as a result of issues caused by natural and weather-related disasters, pandemics and health related crisis, social unrest or warehouse modernization and relocation efforts; risks related to cyber-attacks, other privacy and security incidents and information systems, including related to current or future implementations, integrations or upgrades; general economic and business conditions (domestic, foreign and global) affecting the Company’s operations and financial performance and, indirectly, the Company’s credit ratings, debt covenant compliance, and liquidity and access to financing; geopolitical events, including the uncertainty caused by the United Kingdom’s exit from, and agreement for a new partnership with, the European Union; and legislative or regulatory changes affecting the Company’s businesses.
Any forward-looking statement speaks only as of the date on which that statement is made. Except as required by law, the Company assumes no obligation to update any forward-looking statement to reflect events or circumstances that occur after the date on which the statement is made.
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
For a description of the Company’s critical accounting policies and an understanding of the significant factors that influenced the Company’s performance during the quarter ended December 30, 2017,April 3, 2021, this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the consolidated financial statements, including the related notes, appearing in Item 1 of this Quarterly Report on Form 10-Q, as well as the Company’s Quarterly Reports on Form 10-Q for the fiscal quarters ended October 3, 2020, and January 2, 2021 and Annual Report on Form 10-K for the fiscal year ended July 1, 2017.June 27, 2020. The Company operates on a “52/53 week” fiscal year and fiscal 2021 contains 53 weeks compared to 52 weeks in fiscal 2020. As a result, the first nine months of fiscal 2021 ended April 3, 2021, contained 40 weeks and the first nine months of fiscal 2020 ended March 28, 2020 contained 39 weeks. This extra week in the first nine months of fiscal 2021, which occurred in the first quarter of fiscal 2021, impacts the year-over-year analysis in this MD&A.
There are references to the impact of foreign currency translation in the discussion of the Company’s results of operations. When the U.S. Dollar strengthens and the stronger exchange rates of the current year are used to translate the results of operations of Avnet’s subsidiaries denominated in foreign currencies, the resulting impact is a decrease in U.S. Dollars of reported results. Conversely, when the U.S. Dollar weakens and the weaker exchange rates of the current year are used to translate the results of operations of Avnet’s subsidiaries denominated in foreign currencies, the resulting impact is an increase in U.S. Dollars of reported results. In the discussion that follows, results excluding this impact, primarily for subsidiaries in Europe, the Middle East and Africa (“EMEA”) and Asia/Pacific (“Asia”), are referred to as “constant currency.”
20
In addition to disclosing financial results that are determined in accordance with generally accepted accounting principles in the U.S. (“GAAP”), the Company also discloses certain non-GAAP financial information, including:
| Sales adjusted for certain items that impact the year-over-year analysis, which includes the impact of certain acquisitions by adjusting Avnet’s prior periods to include the sales of acquired businesses, as if the acquisitions had occurred at the beginning of the earliest period presented. In addition, fiscal 2021 sales are adjusted for the estimated impact of the extra week of sales in the first quarter of fiscal 2021 due to it being a 14-week quarter, as discussed above. Sales taking into account these adjustments are referred to as “organic sales.” Additionally, the Company has adjusted sales for the impact of the termination of the Texas Instruments (“TI”) distribution agreement between fiscal years. |
| Operating income (loss) excluding (i) restructuring, integration and other expenses, (see Restructuring, Integration and Other Expenses in this MD&A), |
The reconciliation of operating income (loss) to adjusted operating income is presented in the following table:
| | | | | | | | | | | | | |||||||||||||
| | Third Quarters Ended | | Nine Months Ended | |||||||||||||||||||||
|
| April 3, |
| March 28, |
| April 3, |
| March 28, | |||||||||||||||||
| | 2021 |
| 2020 | | 2021 | | 2020 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
| Second Quarters Ended |
| Six Months Ended |
| ||||||||||||||||||||
|
| December 30, |
| December 31, |
| December 30, |
| December 31, |
| ||||||||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||||||||||||||
|
| (Thousands) |
| ||||||||||||||||||||||
Operating income |
| $ | 87,018 |
| $ | 124,230 |
| $ | 156,973 |
| $ | 253,744 |
| ||||||||||||
| | (Thousands) | |||||||||||||||||||||||
Operating income (loss) | | $ | 87,684 | | $ | (115,760) | | $ | 163,407 | | $ | (6,548) | |||||||||||||
Restructuring, integration and other expenses |
|
| 36,762 |
|
| 30,400 |
|
| 83,156 |
|
| 59,869 |
| |
| 17,574 | |
| 19,211 | |
| 55,943 | |
| 58,073 |
Goodwill and long-lived asset impairment expense | | | — | | | 145,836 | | | — | | | 145,836 | |||||||||||||
Amortization of acquired intangible assets and other |
|
| 21,877 |
|
| 9,829 |
|
| 47,462 |
|
| 12,207 |
| |
| 5,283 | |
| 21,071 | |
| 35,875 | |
| 62,603 |
Adjusted operating income |
| $ | 145,657 |
| $ | 164,459 |
| $ | 287,591 |
| $ | 325,820 |
| | $ | 110,541 | | $ | 70,358 | | $ | 255,225 | | $ | 259,964 |
Management believes that providing this additional information is useful to readers to better assess and understand operating performance, especially when comparing results with prior periods or forecasting performance for future periods, primarily because management typically monitors the business both including and excluding these adjustments to GAAP results. Management also uses these non-GAAP measures to establish operational goals and, in many cases, for measuring performance for compensation purposes. However, any analysis of results on a non-GAAP basis should be used as a complement to, and in conjunction with, results presented in accordance with GAAP.
21
OVERVIEW
OVERVIEW
Organization
Organization
Avnet, Inc., founded in 1921 and incorporated in New York in 1955, together with its consolidated subsidiaries (thesubsidiaries’ (collectively, the “Company” or “Avnet”), is a global value-added distributor of electronic components. Avnet creates a vital link in the technology solutions company with extensive capabilities that can deliver design, product, marketing and supply chain that connectsexpertise for customers at every stage of the world’s leading electronic component manufacturersproduct lifecycle. Avnet transforms ideas into intelligent solutions, reducing the time, cost and complexities of bringing products to market around the world. Founded in 1921, the Company works with a global customer base primarily comprised of original equipment manufacturers, electronic manufacturing services providers and original design manufacturers. over 1,400 technology suppliers to serve 2.1 million customers in more than 140 countries.
Avnet distributes electronic components, as received from its suppliers or through a customized integrated solution, and offers assembly and other value-added services.
Avnet’shas two primary operating groups –— Electronic Components (“EC”) and Premier Farnell (“PF”Farnell”) –. Both operating groups have operations in each of the three major economic regions of the world: (i) the Americas; EMEA;Americas, (ii) EMEA, and Asia/Pacific, consisting of Asia, Australia and New Zealand (“Asia”).(iii) Asia. A summary of each operating group is provided in Note 13,15, “Segment information” to the Company’s consolidated financial statements included in this Quarterly Report on Form 10-Q.
Executive SummarySignificant Risks and Uncertainties
SalesThe COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains, constrained work force participation, disrupted logistics and distribution systems, and created significant volatility and disruption of financial markets. As the scope and duration of the COVID-19 pandemic is unknown and its economic impact continues to evolve globally, there is significant uncertainty related to the ultimate impact it will have on the Company’s business, its employees, results of operations and financial condition, and to what extent the Company’s actions to mitigate such impacts will be successful and sufficient. Accordingly, current results and financial condition discussed herein may not be indicative of future operating results and trends. See the risk factors regarding the impacts of the COVID-19 pandemic included in the Company’s Annual Report on Form 10-K for the secondfiscal year ended June 27, 2020 and Quarterly Reports on Form 10-Q for the fiscal quarters ended October 3, 2020 and January 2, 2021.
The Company did not experience any meaningful financial impact during the third quarter of fiscal 20182021 associated with the COVID-19 pandemic.
Executive Summary
Sales of $4.92 billion in the third quarter of fiscal 2021 were $4.52 billion,14.1% higher than the prior year third quarter sales of $4.31 billion. Excluding the impact of changes in foreign currency, sales increased 10.7% as compared to sales in the prior year third quarter.
Gross profit margin of 11.6% decreased 48 basis points compared to 12.0% in the third quarter of fiscal 2020. This decrease is primarily due to geographical market mix and, to a lesser extent, product and customer mix.
Operating income of $87.7 million was $203.4 million higher, as compared to the third quarter of fiscal 2020. This represents an increase of 5.8% from sales for175.7%. Operating income margin was 1.8% in the secondthird quarter of fiscal 2017 of $4.27 billion.2021, as compared to a negative 2.7% operating loss margin in the prior year. The increase in sales was due to the Company’s acquisition of PF and increased sales EC’s EMEA and Asia regions, offset by sales declines in the Americas region. Sales on an organic basis in constant currency increased year over year by 1.9% with both EC and PF contributing to the increase.
Gross profitoperating income margin for the second quarter of fiscal 2018 remained relatively flatwhen compared to the secondprior year third quarter is the result of fiscal 2017. EC gross profit margin decreasedthe goodwill and long-lived asset impairment expense in the prior year over year primarily due to supplier program changes, and a higher percentage of sales coming from the lower-margin Asia region. PF gross profit margin decreased year over year primarily driven by changes in customer mix.
Avnetquarter. Adjusted operating income margin was 1.9%2.3% in the secondthird quarter of fiscal 20182021 as compared with 2.9%to 1.6% in the secondthird quarter of fiscal 2017. Both periods included amortization and restructuring, integration and other expenses. Excluding these expenses from both periods,2020, an increase of 62 basis points. This increase in adjusted operating income margin was 3.2% in the second quarter of fiscal 2018 as compared to 3.8% in the second quarter of fiscal 2017. EC operating income margin decreased 104 basis points year over year to 3.1%is primarily due to the declineincrease in sales and reductions in selling, general and administrative expenses resulting from the Company’s cost savings initiatives, partially offset by the decrease in gross profit margin. PF operating income margin increased 105 basis points year over year to 10.0% due primarily to revenue growth and the realization of post-acquisition cost synergies.
22
Sales
Sales
The following tables presenttable presents the reconciliation of reported sales to organic sales for the second quartersthird quarter and first sixnine months of fiscal 2017. 2021 by region and by operating group. Reported sales were the same as organic sales in the third quarter and first nine months of fiscal 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||
| | Quarter Ended | | Nine Months Ended | ||||||||||||||||||||||||||||||||||||
| | Sales | | | | | | | | | | | | | | | ||||||||||||||||||||||||
| | As Reported | | | | Organic | | | | | | | | | | Organic | ||||||||||||||||||||||||
| | and | | | | | Sales | | Sales | | | | | Organic | | | | | Sales | |||||||||||||||||||||
| | Organic | | TI Sales | | Adj for TI | | As Reported | | Estimated | | Sales | | TI Sales | | Adj for TI | ||||||||||||||||||||||||
| | Q3-Fiscal | | Q3-Fiscal | | Q3-Fiscal | | Q3-Fiscal | | Extra | | Q3-Fiscal | | Q3-Fiscal | | Q3-Fiscal | ||||||||||||||||||||||||
| | 2021 |
| 2021(1) |
| 2021(1) |
| 2021 |
| Week(2) |
| 2021 |
| 2021(1) |
| 2021(1) | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
|
|
|
|
|
| As Reported |
|
|
| Organic |
| |||||||||||||||||||||||||||||
|
| As Reported |
|
|
| Year-Year % |
|
|
| Year-Year % |
| |||||||||||||||||||||||||||||
|
| and Organic |
| As Reported |
| Change in |
| Organic |
| Change in |
| |||||||||||||||||||||||||||||
|
| Q2-Fiscal |
| Year-Year |
| Constant |
| Year-Year |
| Constant |
| |||||||||||||||||||||||||||||
|
| 2018 |
| % Change |
| Currency |
| % Change |
| Currency |
| |||||||||||||||||||||||||||||
|
| (Dollars in thousands) |
| |||||||||||||||||||||||||||||||||||||
| | (Thousands) | ||||||||||||||||||||||||||||||||||||||
Avnet |
| $ | 4,521,636 |
| 5.8 | % |
| 3.1 | % |
| 4.6 | % |
| 1.9 | % |
| | $ | 4,916,714 | | $ | 1,659 | | $ | 4,915,055 | | $ | 14,307,945 | | $ | 306,000 | | $ | 14,001,945 | | $ | 292,212 | | $ | 13,709,733 |
Avnet by region |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Americas |
| $ | 1,210,251 |
| (3.4) | % |
| — |
|
| (4.8) | % |
| — |
|
| | $ | 1,160,973 | | $ | 416 | | $ | 1,160,557 | | $ | 3,468,118 | | $ | 77,000 | | $ | 3,391,118 | | $ | 82,885 | | $ | 3,308,233 |
EMEA |
|
| 1,506,015 |
| 9.1 |
|
| 0.8 | % |
| 7.0 |
|
| (1.2) | % |
| | | 1,585,631 | | | 483 | | | 1,585,148 | | | 4,412,652 | | | 97,000 | | | 4,315,652 | | | 124,232 | | | 4,191,420 |
Asia |
|
| 1,805,370 |
| 10.1 |
|
| 10.2 |
|
| 9.8 |
|
| 9.9 |
|
| | | 2,170,110 | | | 760 | | | 2,169,350 | | | 6,427,175 | | | 132,000 | | | 6,295,175 | | | 85,095 | | | 6,210,080 |
Avnet by segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Avnet by operating group | Avnet by operating group | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||
EC |
| $ | 4,163,519 |
| 4.0 | % |
| 1.4 | % |
| 4.0 | % |
| 1.4 | % |
| | $ | 4,520,608 | | $ | 1,659 | | $ | 4,518,949 | | $ | 13,245,143 | | $ | 284,000 | | $ | 12,961,143 | | $ | 292,212 | | $ | 12,668,931 |
PF |
|
| 358,117 |
| 33.0 |
|
| 27.5 |
|
| 12.3 |
|
| 7.7 |
|
| ||||||||||||||||||||||||
Farnell | | | 396,106 | | | — | | | 396,106 | | | 1,062,802 | | | 22,000 | | | 1,040,802 | | | — | | | 1,040,802 |
___________
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Second Quarter Ended |
| Six Months Ended |
| ||||||||||||||
|
| As |
|
|
|
|
|
| As |
|
|
|
|
|
| ||||
|
| Reported |
|
|
| Organic Sales |
| Reported |
|
|
| Organic Sales |
| ||||||
|
| Fiscal 2017 |
| Acquisitions (1) |
| Fiscal 2017 |
| Fiscal 2017 |
| Acquisitions (1) |
| Fiscal 2017 |
| ||||||
|
| (Thousands) |
| ||||||||||||||||
Avnet |
| $ | 4,273,559 |
| $ | 49,639 |
| $ | 4,323,198 |
| $ | 8,391,663 |
| $ | 378,352 |
| $ | 8,770,015 |
|
Avnet by region |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas |
| $ | 1,252,606 |
| $ | 18,282 |
| $ | 1,270,888 |
| $ | 2,503,114 |
| $ | 154,426 |
| $ | 2,657,540 |
|
EMEA |
|
| 1,380,694 |
|
| 26,558 |
|
| 1,407,252 |
|
| 2,645,988 |
|
| 178,879 |
|
| 2,824,867 |
|
Asia |
|
| 1,640,259 |
|
| 4,799 |
|
| 1,645,058 |
|
| 3,242,561 |
|
| 45,047 |
|
| 3,287,608 |
|
Avnet by segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EC |
| $ | 4,004,342 |
| $ | — |
| $ | 4,004,342 |
| $ | 8,122,446 |
| $ | — |
| $ | 8,122,446 |
|
PF |
|
| 269,217 |
|
| 49,639 |
|
| 318,856 |
|
| 269,217 |
|
| 378,352 |
|
| 647,569 |
|
(1) |
|
(2) | The impact of the additional week of sales in the first quarter of fiscal 2021 is estimated. |
SecondThe following table presents reported and organic sales growth rates for the third quarter and first nine months of fiscal 2021 as compared to fiscal 2020 by region and by operating group.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Quarter Ended | | Nine Months Ended | ||||||||||||||||||||
| | | | Sales As | | Organic | | | | | | | | | | | | | | Organic | ||||
| | Sales As | | Reported | | Sales | | | | Sales As | | | | | Organic | | Sales | |||||||
| | Reported | | and Organic | | Adj for TI | | | | Reported | | | | Sales | | Adj for TI | ||||||||
| | and | | Year-Year % | | Year-Year % | | Sales As | | Year-Year % | | Organic | | Year-Year % | | Year-Year % | ||||||||
| | Organic | | Change in | | Change in | | Reported | | Change in | | Sales | | Change in | | Change in | ||||||||
| | Year-Year | | Constant | | Constant | | Year-Year | | Constant | | Year-Year | | Constant | | Constant | ||||||||
| | % Change |
| Currency |
| Currency(1) |
| % Change | | Currency |
| % Change |
| Currency |
| Currency(1) | ||||||||
Avnet | | 14.1 | % | | 10.7 | % | | 22.0 | % | | 6.2 | % | | 3.9 | % | | 3.9 | % | | 1.6 | % | | 9.5 | % |
Avnet by region | | | | | | | | | | | | | | | | | | | | | | | | |
Americas | | (3.5) | % | | (3.5) | % | | 4.9 | % | | (3.8) | % | | (3.8) | % | | (6.0) | % | | (6.0) | % | | (0.2) | % |
EMEA | | 4.8 | | | (3.4) | | | 6.5 | | | 0.1 | | | (6.0) | | | (2.1) | | | (8.2) | | | (1.8) | |
Asia | | 36.2 | | | 35.0 | | | 50.3 | | | 17.7 | | | 17.0 | | | 15.3 | | | 14.6 | | | 25.4 | |
Avnet by operating group | | | | | | | | | | | | | | | | | | | | | | | ||
EC | | 13.7 | % | | 10.5 | % | | 22.9 | % | | 6.2 | % | | 4.0 | % | | 3.9 | % | | 1.7 | % | | 10.4 | % |
Farnell | | 18.2 | | | 12.3 | | | 12.3 | | | 6.1 | | | 2.4 | | | 3.9 | | | 0.2 | | | 0.2 | |
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(1) | Sales growth rates excluding the impactof the termination of the TI distribution agreement, which was completed in December 2020. |
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Sales of $4.92 billion for the third quarter of fiscal 2021 were up $606.9 million, or 14.1%, from the prior year third quarter sales of $4.52 billion$4.31 billion. Sales in constant currency in the third quarter of fiscal 2021 increased 5.8% overby 10.7% year-over-year. The increase in sales is primarily the prior year second quarter salesresult of $4.27 billion primarily due to the acquisition of PF and increased sales in EC’s EMEA and Asia regions. On a regional basis, increased sales in the EC’s EMEACompany’s EC Asia region and Asia regions drivensales growth at Farnell. The year-over-year sales increases were impacted by strong demand across many product verticals were offset by a decrease inlower sales of TI products in the Americas region due primarily to supplier channel and program changes.
third quarter of fiscal 2021. Organic sales in constant currency excluding TI sales in the third quarter of fiscal 2021 were 22.0% higher than sales in the third quarter of fiscal 2020 reflecting improvements in both operating groups across all regions.
EC sales of $4.52 billion in the third quarter of fiscal 2021 increased 1.9% over$545.9 million or 13.7% from the prior year secondthird quarter with bothsales of $3.97 billion. On an organic basis, EC sales excluding TI increased 22.9% year over year in constant currency, reflecting sales growth in all three regions. The increase in sales in the Company’s EC operating groups contributinggroup is primarily due to this increase driven byimprovements in overall market demand partially offset byand stronger demand in certain industry sectors, particularly the impacttransportation and industrial sectors.
Farnell sales for the third quarter of supplier program changes. fiscal 2021 were $396.1 million, an increase of $61.0 million or 18.2% from the prior year third quarter sales of $335.1 million. Sales in constant currency increased 12.3% year-over-year. These increases were primarily a result of improved market demand in all three regions.
Sales for the first sixnine months of fiscal 20182021 were $9.18$14.31 billion, an increase of 9.4%$833.3 million as compared to sales of $8.39$13.47 billion for the first sixnine months of fiscal 20172020. The increase in sales was primarily due to growth in the acquisitionAsia region and the global benefit of PF.an extra week of sales in the first quarter of fiscal 2021, partially offset by the decline in TI sales. Organic sales forin constant currency excluding TI sales increased 9.5% year-over-year in the first six months of 2018 increased $412.6 million over the first sixnine months of fiscal 2017 organic sales primarily due to increases in EMEA and Asia, offset by declines in the Americas.2021.
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Gross Profit and Gross Profit Margins
Gross profit for the secondthird quarter of fiscal 20182021 was $602.5$568.4 million, an increase of $16.3$49.4 million, or 2.8%9.5%, from the secondthird quarter of fiscal 20172020 gross profit of $586.2 million driven primarily by the acquisition of PF.$518.9 million. Gross profit margin remained relatively flat withdecreased to 11.6% (or 48 basis points) from the year ago second quarter.
ECthird quarter of fiscal 2020 gross profit margin decreased year over yearof 12.0%, driven by declines in gross profit margin in both operating groups. The declines in gross profit margin in both operating groups are primarily due to supplier programgeographical market mix and, to a lesser extent, from unfavorable changes in product and a sales mix shift tocustomer mix. Sales in the lower-margin Asia region. Asia saleshigher gross profit margin western regions represented 42%approximately 56% of the total EC sales in the secondthird quarter of fiscal 20182021, as compared with 40% into 63% during the secondthird quarter of fiscal 2017. PF gross profit margin decreased year over year primarily driven by customer mix.2020.
Gross profit and gross profit marginsmargin were $1.22$1.60 billion and 13.2%11.2%, respectively, for the first sixnine months of fiscal 20182021, as compared with $1.11$1.59 billion and 13.2%11.8%, respectively, for the first sixnine months of fiscal 2017. Decreases in EC’s gross profit margin due to supplier program changes were offset by increases2020. The decline in gross profit margin during the first nine months of fiscal 2021 compared to the first nine months of fiscal 2020 is primarily due to geographical market mix and, to a lesser extent, from unfavorable changes in product and customer mix. Sales in the acquisitionhigher gross profit margin western regions represented approximately 55% of PF.sales in the first nine months of fiscal 2021 as compared to 59% during the first nine months of fiscal 2020.
Selling, General and Administrative Expenses
Selling, general and administrative expenses (“SG&A expenses”) were $478.7$463.1 million in the secondthird quarter of fiscal 2018, an increase2021, a decrease of $47.1$6.6 million, or 10.9%1.4%, from the secondthird quarter of fiscal 2017.2020. The year-over-year increasedecrease in SG&A expenses was primarily due to the acquisition of PF,cost savings from restructuring activities and lower amortization expense, partially offset by the impact of changes in foreign currency exchange rates and increased expenses due to sales growth, partially offset by decreases from restructuring actions taken in the trailing twelve months ended December 30, 2017. The increase includes $11.9 million of additional amortization expense year over year from the acquisition of PF. weakening U.S. Dollar.
Metrics that management monitors with respect to its operating expenses are SG&A expenses as a percentage of sales and as a percentage of gross profit. In the secondthird quarter of fiscal 2018,2021, SG&A expenses as a percentage of sales were 10.6%9.4% and as a percentage of gross profit were 79.5%81.5%, as compared with 10.1%10.9% and 73.6%90.5%, respectively, in the secondthird quarter of fiscal 2017.2020. The increasesdecrease in SG&A expenses as a percentage of sales and as a percentage of gross profit isprimarily results from operating leverage created from higher sales, cost savings from restructuring activities, and lower amortization expense, partially offset by foreign currency due primarily to the acquisitionweakening U.S. Dollar and from the decrease in gross profit margin.
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SG&A expenses for the first sixnine months of fiscal 20182021 were $974.9 million,$1.38 billion, or 10.6%9.6% of sales, as compared with $795.2 million,$1.39 billion, or 9.5%10.3% of sales, in the first sixnine months of fiscal 2017. SG&A expenses were 80.2% of gross profit in the first six months of 2018 as compared with 71.7% in the first six months of fiscal 2017.2020. The year-over-year increasedecrease in SG&A expenses was primarily due to the acquisition of PFcost savings from restructuring activities and lower amortization expense, partially offset by the impact of supplier program changes on EC’s salesforeign currency due to the weakening U.S. Dollar and from the decrease in gross profit.profit margin. SG&A expenses were 86.3% of gross profit in the first nine months of 2021 as compared with 87.6% in the first nine months of fiscal 2020.
Restructuring, Integration, and Other Expenses
As a result of the aforementioned supplier channel and program changes, themanagement’s focus on lowering overallimproving operating costs,efficiencies and the integration of PF,reducing operating costs, the Company has incurred certain restructuring, costs. In addition, the Company incurred integration, accelerated depreciation, acquisition/divestiture and other costs. Restructuring costs primarily relate to the restructuring of the Company’s information technology, distribution center footprint, and business operations. Integration costs are primarily relatedrelate to the integration of acquired businesses including PF, the integration of certain regional and global businesses, including Avnet after the TS divestiture, andas well as incremental costs incurred as part of the consolidation, relocation, sale and closure of warehousedistribution centers and office facilities. Accelerated depreciation relates to the incremental depreciation expense incurred related to the shortening of the estimated useful life of the Company’s enterprise resource planning (“ERP”) system in the Americas compared to depreciation expense based on the original useful life of such ERP system as such ERP system is in the process of being replaced. Acquisition/divestiture costs consist primarily of professional fees and other costs incurred related to the acquisition, divestiture and closure of businesses including the acquisition of PF and the divestiture of TS. Other costs consist primarily of any other miscellaneous costs that relate to restructuring, integration and other expenses.expenses, including acquisition related costs and specific and incremental costs incurred associated with the impacts of the COVID-19 pandemic.
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The Company recorded restructuring, integration and other expenses of $36.8$17.6 million during the secondthird quarter of fiscal 2018.2021. The Company recorded $12.9$5.4 million of restructuring costs in the secondthird quarter of fiscal 2018 in order2021, which are expected to realize approximately $2.0provide over $7.0 million in expected annualizedannual operating costexpense savings once such restructuring actions initiated before the end of the second quarter of fiscal 2018 are completed. During the secondthird quarter of fiscal 2018,2021, the Company also incurred integration costs of $8.2$12.0 million accelerated depreciationand other expenses of $16.9$0.2 million. The after-tax impact of restructuring, integration and other expenses were $13.5 million otherand $0.13 per share on a diluted basis.
During the first nine months of fiscal 2021, the Company incurred restructuring costs of $0.2$39.9 million, andintegration costs of $26.5 million, which was offset by a gain on legal settlement of $8.2 million, a reversal of $1.4$2.1 million for changes in estimates for costs associated with prior year restructuring actions. The after tax impactactions and a net reversal of restructuring, integration and other expenses were $27.8 million and $0.23 per share on a diluted basis.
During the first six months of fiscal 2018, the Company incurred restructuring costs of $34.2 million, integration costs of $16.4 million, accelerated depreciation of $33.3 million, other costs of $0.7 million and reversals of $1.4 million for changes in estimates for costs associated with prior year restructuring actions.$0.2 million. The after taxafter-tax impact of restructuring, integration and other expenses for the first sixnine months of fiscal 20182021 was $57.4$44.6 million and $0.47$0.44 per share on a diluted basis.
Comparatively, in the second quarter of fiscal 2017, restructuring, integration and other expenses from continuing operations were $30.4 million. The after tax impact of restructuring, integration, and other expenses was $23.0 million and $0.18 per share on a diluted basis.
In the first six months of fiscal 2017, restructuring, integration and other expenses from continuing operations was $59.9 million. The after tax impact of restructuring, integration and other expenses for the first six months of fiscal 2017 was $43.2 million and $0.34 per share on a diluted basis.
See Note 1416 “Restructuring expenses” to the Company’s consolidated financial statements included in this Quarterly Report on Form 10-Q.
Operating Income (Loss)
Operating income for the secondthird quarter of fiscal 20182021 was $87.0$87.7 million, a decreasean increase of $37.2$203.4 million, or 30.0%175.7%, from the secondthird quarter of fiscal 20172020 operating loss of $115.8 million, which included goodwill and long-lived asset impairment expense of $145.8 million. Adjusted operating income for the third quarter of $124.2 million.fiscal 2021 was $110.5 million, an increase of $40.2 million, or 57.1%, from the third quarter of fiscal 2020. The year over year decreaseyear-over-year increase in adjusted operating income was primarily driven by declinesthe increase in sales and by the EC’s Americas and EMEA regions due primarily to supplier program changes, partially offset by an increase at PF. Adjusted operating income for the second quarter of fiscal 2018 was $145.7 million, a decrease of $18.8 million, or 11.4%, from the second quarter of fiscal 2017.reduction in SG&A expenses.
EC operating income margin decreased 104increased 49 basis points year over year to 3.1% due primarily to supplier program changes partially offset by cost reductions from restructuring actions. PF2.6% and Farnell operating income margin increased 105decreased 95 basis points year over year to 10.0% due primarily to sales growth and the realization of post-acquisition cost synergies. 6.0%.
Operating income for the first sixnine months of fiscal 20182021 was $157.0$163.4 million, or 1.7%1.1% of consolidated sales, as compared with operating incomeloss of $253.7$6.5 million, or 3.0%negative 0.1% of consolidated sales in the first sixnine months of 2017fiscal 2020. Adjusted operating income for the first nine months of fiscal 2021 was $255.2 million, a decrease of $4.7 million, or 1.8%, from the first nine months of fiscal 2020. The year-over-year decrease in adjusted operating income was primarily driven by declinesthe decline in ECgross profit margin, partially offset by the acquisitionincrease in sales and the reduction in SG&A expenses.
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Interest Expenseand Other Financing Expenses, Net and Other Income (Expense), Net
Interest expenseand other financing expenses in the secondthird quarter of fiscal 20182021 was $25.6$22.3 million, a decrease of $1.1$7.4 million, or 4.1%24.8%, as compared with interest expenseand other financing expenses of $26.7$29.7 million in the secondthird quarter of fiscal 2017.2020. Interest expenseand other financing expenses in the first sixnine months of fiscal 20182021 was $49.7$66.1 million, a decrease of $4.3$31.1 million, or 7.9%32.0%, as compared with interest expenseand other financing expenses of $54.0$97.3 million in the first sixnine months of fiscal 2017.2020. The decrease in interest expenseand other financing expenses in the second quarter and first sixnine months of fiscal 20182021 compared to the second quarter and first sixnine months of fiscal 20172020 was primarily related to the impact of the Company’s repayment of itslower outstanding term loans and borrowings on its revolving credit facilities, which were usedduring fiscal 2021 as compared to help fund the PF acquisition. fiscal 2020.
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During the secondthird quarter of fiscal 2018,2021, the Company had $0.8 million of other income, net, as compared with $36.5 million of other expense, net, in the second quarter of fiscal 2017. During the first six months of fiscal 2017, the Company recognized $16.3$4.8 million of other income as compared with $50.2$12.6 million of other expensesexpense in the third quarter of fiscal 2020. During the first nine months of fiscal 2021, the Company had $16.1 million of other expense as compared with $9.6 million of other expense in the first sixnine months of fiscal 2017. In2020. The year-over-year differences in other income (expense) was primarily due to $15.2 million of equity investment impairment expense included in other expense in the first sixnine months of fiscal 2018, the Company had2021 and differences in foreign currency gains primarily due toexchange rates between the strengthening of the Euro compared to the U.S. Dollar and British Pound. In the second quarter and first sixnine months of fiscal 2017, the Company incurred additional financing2021 and economic foreign currency hedging costs associated with the PF acquisition.fiscal 2020.
Income Tax ExpenseBenefit
The Company’s effective tax rate on its income before income taxes from continuing operations was 8.6%a benefit of 53.3% in the secondthird quarter of fiscal 2018.2021. During the secondthird quarter of fiscal 2018,2021, the Company’s effective tax rate was favorably impacted primarily by (i) the tax benefit arising from the reduction in value of certain businesses for income tax purposes and (ii) decreases to valuation allowances, partially offset by (iii) increases to unrecognized tax benefit reserves.
For the first nine months of fiscal 2021, the Company’s effective tax rate on its income before taxes was a benefit of 32.7%. The effective tax rate for the first nine months of fiscal 2021 was favorably impacted primarily by (i) the tax benefit arising from the reduction in value of certain businesses for income tax purposes, (ii) decreases to valuation allowances, and (iii) the mix of income in lower tax jurisdictions, partially offset by the tax expense created from remeasuring net deferred tax assets as a result of applying the requirements of the Act.
During the second quarter of fiscal 2017, the Company’s effective tax rate of 46.7% was unfavorably impacted primarily by (i) net(iv) increases to valuation allowances against deferred tax assets created primarily from acquisition related expenses that were deemed unrealizable and (ii) the impact of non-deductible acquisition related expenses, partially offset by (iii) the mix of income in lower tax jurisdictions.
For the first six months of fiscal 2018 the Company’s effective tax rate on its income before income taxes from continuing operations was 7.0%. The effective tax rate for the first six months of fiscal 2018 was favorably impacted primarily by (i) the mix of income in lower tax jurisdictions and (ii) the release of unrecognized tax benefit reserves primarily due to the negotiation of a favorable outcome in a foreign jurisdiction, partially offset by the (iii) tax expense created from remeasuring net deferred tax assets as a result of applying the requirements of the Act.reserves.
During the first six months of fiscal 2017, the Company’s effective tax rate of 33% was unfavorably impacted primarily by (i) net increases to valuation allowances against deferred tax assets that were deemed unrealizable and (ii) the impact of non-deductible acquisition related expenses, partially offset by (iii) the mix of income in lower tax jurisdictions.
See Note 8 “Income taxes” to the Company’s consolidated financial statements included in this Quarterly Report on Form 10-Q.
Income from Discontinued Operations
Loss from discontinued operations was $10.1 million and $9.9 million in the second quarter and the first six months of fiscal 2018, respectively, primarily as a result of settlement losses associated with the Company’s pension plan due to former TS business employees requesting and receiving distributions from the Company’s pension plan during fiscal 2018. Refer to Note 9, “Pension Plan,” for further information on the pension settlement losses.
Income from discontinued operations was $70.8 million and $71.9 million in the second quarter and the first six months of fiscal 2017, respectively due to the operating results of the TS business, which was sold in the third quarter of fiscal 2017.
See Note 3, “Discontinued operations” to the Company’s consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information and detail on the financial results of discontinued operations.
Net Income (Loss)
As a result of the factors described in the preceding sections of this MD&A, the Company’s net income for the secondthird quarter of fiscal 20182021 was $46.7$107.5 million, or $0.38$1.07 per share on a diluted basis, as compared with $103.2net loss of $128.7 million, or $0.79$1.29 per share on a diluted basis, in the secondthird quarter of fiscal 2017. 2020.
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As a result of the factors described in the preceding sections of this MD&A, the Company’s net income for the first sixnine months of fiscal 20182021 was $105.0$107.8 million, or $0.85$1.08 per share on a diluted basis, as compared with $172.1net loss of $83.2 million, or $1.32$0.82 per share on a diluted basis, in the first sixnine months of fiscal 2017. 2020.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow
Cash Flow from Operating Activities
During the first sixnine months of fiscal 2018,2021, the Company used $59.2generated $197.5 million of cash flow from its operating activitiesoperations compared to a$442.6 million of cash generation of $240.1 milliongenerated in the first sixnine months of fiscal 2017.2020. These operating cash flows were comprised of: (i) cash flow generated from net income, from continuing operations, adjusted for the impact of non-cash and other items, which includes depreciation and amortization expenses, deferred income taxes, stock-based compensation expense, amortization of operating lease assets and other non-cash items, (including provisions for doubtful accounts and net periodic pension costs), (ii) cash flows used for, or generated from, working capital and other, excluding cash and cash equivalents, and (iii) operating cash flows used for, or generated from, the TS business, which is classified as a discontinued operation.equivalents. Cash used for working capital and other was $282.5$112.0 million during the first sixnine months of fiscal 2018,2021, including an increase in inventoriesaccounts receivable of $410.4$405.7 million, and a decrease in accrued expenses and other of $56.0 million. The Company utilized cash to invest in inventory levels primarily as a result of a strong book to bill and lengthening purchasing lead times. The increase in cash used was partially offset by a decrease in accounts receivableinventories of $108.5$63.0 million, and an increaseincreases in accounts payable of $75.3$224.2 million and accrued expenses and other
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of $6.5 million. Comparatively, cash generated from working capital and other was $90.8$180.9 million during the first sixnine months of fiscal 2017,2020, including a decreasedecreases in accounts receivable of $150.1 million and inventories of $139.7$228.0 million, and an increaseoffset by decreases in accounts payable of $133.7$112.9 million partially offset by an increase in accounts receivable of $127.2 million and a decrease in accrued expenses and other of $55.4$84.3 million.
Cash used for operating activities of discontinued operations was $63.1 million in the first six months of fiscal 2017 as the sale of the TS business was completed in the third quarter of fiscal 2017.
Cash Flow from Financing Activities
During the first sixnine months of fiscal 2018,2021, the Company receivedmade a net proceedsrepayment of $78.0$232.3 million under the Company’s accounts receivable securitization program. During the first six months of fiscal 2018, the Company repaid $27.4 million from borrowings of various bank credit facilities and $100.0 million under the Company’s Credit Facility. During the first six months of fiscal 2018, the Company paid dividends on common stock of $43.6 million and repurchased $135.5 million of common stock.
During the first six months of fiscal 2017, the Company received net proceeds of $296.4 million as a result of the issuance of $300.0 million of 3.75% Notes due December 2021. Additionally, the Company received net proceeds of $530.8 million and $771.2 million from borrowings under the Term Loan and from the Company’s Credit Facility respectively. During the first six months of fiscal 2017, the Company repaid $378.6 million of notes and acquired debt and made net repayments of $265.0 million under the Company’s accounts receivable securitization program. During the first six months of fiscal 2017, the Company repaid $19.0 million from borrowings of various bank credit facilities and paid dividends on common stock of $43.4$62.4 million.
During the first nine months of fiscal 2020, the Company made net repayments of $127.4 million under the Securitization Program, paid dividends on common stock of $63.2 million, and repurchased $235.8 million of common stock.
Cash Flow from Investing Activities
During the first sixnine months of fiscal 2018,2021, the Company used $67.4$39.0 million for capital expenditures primarily related to warehouse and facilities, and information system development costs, computertechnology hardware and software purchases and facilities costs, compared to $70.4$61.2 million for capital expenditures in the first sixnine months of fiscal 2017.2020. During the first sixnine months of fiscal 2018,2021, the Company paid $18.4 million for an asset acquisition. The Company used $14.7$51.5 million of cash for acquisitions, which is net of the cash acquired, compared to $798.4and paid $12.5 million of cash for acquisitions, which is net of the cash acquired inother investing activities during the first sixnine months of fiscal 2017. 2020.
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During the first six months of fiscal 2018, the Company generated $112.7 million of cash from investing activities – discontinued operations, substantially all driven by the sale of marketable securities obtained through the sale of the TS business.
Contractual Obligations
For a detailed description of the Company’s long-term debt and lease commitments for the next five years and thereafter, see Long-Term Contractual Obligations appearing in Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended July 1, 2017. With the exception of the Company’s debt transactions discussed herein, thereJune 27, 2020. There are no material changes to this information outside of normal borrowings and repayments of long-term debt and operating lease payments. The Company does not currently have any material non-cancellable commitments for capital expenditures or inventory purchases.purchases outside of the normal course of business.
Financing Transactions
See Note 5,6, “Debt” to the Company’s consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information on financing transactions including the Credit Facility, the Securitization Program, and other outstanding debt as of December 30, 2017.April 3, 2021. The Company was in compliance with all covenants under the Credit Facility and the Securitization Program as of December 30, 2017.April 3, 2021 and June 27, 2020.
The Company has various lines of credit, financing arrangements, and other forms of bank debt in the U.S. and various foreign locations to fund the short-term working capital, foreign exchange, overdraft, and letter of credit needs of its wholly owned subsidiaries. Avnet generally guarantees its subsidiaries’ obligations under such debt facilities. Outstanding borrowings under such forms of debt at the end of secondthird quarter of fiscal 20182021 was $0.9$1.4 million.
LiquidityAs an alternative form of financing outside of the United States, the Company sells certain of its trade accounts receivable on a non-recourse basis to third-party financial institutions pursuant to factoring agreements. The Company accounts for these transactions as sales of receivables and presents cash proceeds as cash provided by operating activities in the consolidated statements of cash flows. Factoring fees for the sales of trade accounts receivable are recorded within “Interest and other financing expenses, net” and were not material.
Liquidity
The Company held cash and cash equivalents of $589.5$322.7 million as of December 30, 2017,April 3, 2021, of which $568.7$243.1 million was held outside the United States. As of July 1, 2017,June 27, 2020, the Company held cash and cash equivalents of $836.4$477.0 million, of which $619.5$411.2 million was held outside of the United States.
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As of the end of the secondthird quarter of fiscal 2018,2021, the Company had a combined total borrowing capacity of $1.65$1.70 billion under the Credit Facility and the Securitization Program. There were no borrowings outstanding and $2.0$1.3 million in letters of credit issued under the Credit Facility and $220.0 million inno borrowings outstanding under the Securitization Program, resulting in approximately $1.37$1.61 billion of total availability as of December 30, 2017.April 3, 2021. Availability under the Securitization Program is subject to the Company having sufficient eligible trade accounts receivable in the United States to support desired borrowings.
Borrowings under the Credit Facility require the Company to maintain certain financial and other covenants and the Securitization has cross default provisions associated with the covenants in the Credit Facility. The Credit Facility requires the Company to maintain minimum interest coverage and leverage ratios. All other forms of debt and financing do not include financial or other covenants. The Company currentlywas in compliance with all covenants under the Credit Facility as of April 3, 2021.
During the third quarter of fiscal 2021, the Company committed to an early redemption of all $300 million of its outstanding 3.75% Notes due December 2021. The Company expects to utilize availability under credit facilities to support working capital and other general corporate purposes to the extentrefinance such incremental borrowings do not impact the Company’s investment grade credit rating. notes.
During the secondthird quarter and first sixnine months of fiscal 2018,2021, the Company had an average daily balance outstanding of approximately $0.1$249.1 million and $5.3$138.2 million, respectively, under the Credit Facility and approximately $225.0$76.5 million and $195.0$198.6 million, respectively, under the Program. During the second quarter and first six months of fiscal 2017, the Company had an average daily balance outstanding of approximately $818.6 million and $635.2 million, respectively, under the Credit Facility and approximately $622.0 million and $671.0 million, respectively, under theSecuritization Program.
During periods of weakening demand in the electronic components industry, the Company typically generates cash from operating activities. Conversely, the Company is more likely to use operating cash flows for working capital requirements during periods of higher growth. The Company used $141.4generated $485.1 million in cash flows from operating activities over the trailing four fiscal quarters ended December 30, 2017 for continuing operations.April 3, 2021.
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Liquidity is subject to many factors, such as normal business operations as well as general economic, financial, competitive, legislative, and regulatory factors that are beyond the Company’s control. This includes the potential impact on liquidity and related compliance with debt covenants as a result of the uncertain future impacts of the COVID-19 pandemic. To the extent the cash balances held in foreign locations cannot be remitted back to the U.S. in a tax efficient manner, those cash balances are generally used for ongoing working capital, capital expenditure needsexpenditures and to support acquisitions, and are currently expected to be permanently reinvested outside the United States. The Company is still evaluating the impact of repatriating suchother foreign cash as a result of changes in U.S. tax law from the Act, which was signed into law on December 22, 2017.business needs. In addition, local government regulations may restrict the Company’s ability to move funds among various locations under certain circumstances. Management does not believe such restrictions would limit the Company’s ability to pursue its intended business strategy.
The Company continuously monitors and reviews its liquidity position and funding needs. Management believes that Avnet’s available borrowing capacity, its current cash on hand including the remaining proceeds and marketable securities from the sale of the TS business and the Company’s expected ability to generate operating cash flows in the future and available borrowing capacity, including capacity for the non-recourse sale of trade accounts receivable, will be sufficient to meet its future liquidity needs. The Company may also may issuerenew or replace expiring debt or equity securitiesarrangements in the future and management believes the Company will have adequate access to the capital markets, if needed.
The Company expectshas historically generated operating cash flows and believes it will have the ability to make material income tax payments on its unremitted foreign earnings asdo so in the future.
As a result of the impactevolving impacts of the Act. The Act requiresCOVID-19 pandemic and the related uncertain future business conditions, the Company to pay a one-time transition tax on unremitted foreign earnings (the “transition tax”), which the Company expectsis unlikely to make a policy decision to pay over an eight year period. The Company is still gathering the necessary information to make reasonable estimates for the amount of the transition tax, but the Company expects the transition tax owed will be material due to the Company’s approximately $3.3 billion of unremitted foreign earnings as of July 1, 2017.
Historically the Company has made, and expects to continue to make,near-term strategic investments through acquisition activity to the extent the investments strengthen Avnet’s competitive position, further its business strategies and meet management’s return on capital thresholds.material acquisitions. The Company also expects to make capital expenditures, including expenditures over the next two fiscal years to implement a global ERP system. Additionally, as the Company integrates PF and restructures to transform Avnet into an electronic components focused business, the Company expects to use cash for restructuring, integration and other expenses.
In addition to continuing to make investments in acquisitions, asAs of December 30, 2017,April 3, 2021, the Company may repurchase up to an aggregate of $459.6$469.0 million of shares of the Company’s common stock through a $1.95$2.95 billion share repurchase program approved by the Board of Directors. The Company may repurchase stock from time to time at the discretion of management, subject to strategic considerations, market conditions and other factors. The Company may terminate or limit the share repurchase program at any time without prior notice. The timingAs a result of the impacts of the COVID-19 pandemic and actual number of shares repurchased will depend on a variety of factors such as share price, corporatethe corresponding need to manage liquidity and regulatory requirements, and prevailing market conditions. Additionally,leverage, the Company currently expects to payhas temporarily suspended share repurchases.
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The Company has historically paid quarterly cash dividends on shares of its common stock, and future dividends are subject to approval ofby the Board of Directors. During the secondthird quarter of fiscal 2018,2021, the Board of Directors approved a dividend of $0.18$0.21 per share, which resulted in $21.6$20.9 million of dividend payments during the quarter.
Recently Issued Accounting Pronouncements
See Note 1, “Basis of presentation and new accounting pronouncements” to the Company’s consolidated financial statements included in this Quarterly Report on Form 10-Q for a description of recently issued accounting pronouncements.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Item 3.Quantitative and Qualitative Disclosures About Market Risk
The Company seeks to reduce earnings and cash flow volatility associated with changes in foreign currency exchange rates by entering into financial arrangements that are intended to provide an economic hedge against all or a portion of the risks associated with such volatility. The Company continues to have exposure to such risks to the extent they are not economically hedged.
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See Item 7A, Quantitative and Qualitative Disclosures About Market Risk, in the Company’s Annual Report on Form 10-K for the fiscal year ended July 1, 2017,June 27, 2020, for further discussion of market risks associated with foreign currency exchange rates and interest rates. Avnet’s exposure to such risks has not changed materially since July 1, 2017,June 27, 2020, as the Company continues to economically hedge the majority of its foreign currency exchange exposures. Thus, any increase or decrease in fair value of the Company’s forward foreign currency exchange contracts is generally offset by an opposite effect on the related economically hedged position. For interest rate risk, the Company continues to maintain a combination of fixed and variable rate debt to mitigate the exposure to fluctuationfluctuations in market interest rates. The Company’s exposure to market price risk related to marketable securities is mitigated through the purchase of a derivative financial instrument that economically fixes the value of the marketable securities.
See Liquidity and Capital Resources — Financing Transactions appearing in Item 2 of this Quarterly Report on Form 10-Q for further discussion of the Company’s financing transactions and capital structure. As of December 30, 2017, 86%April 3, 2021, approximately 100% of the Company’s debt bears interest at a fixed rate and 14%a very insignificant percentage of the Company’s debt bears interest at variable rates. Therefore, a hypothetical 1.0% (100 basis points) increase in interest rates would result in a $0.6 millionan insignificant decrease in income from continuing operations before income taxes in the Company’s consolidated statement of operations for the secondthird quarter of fiscal 2018.2021.
Item 4. | Controls and Procedures |
Item 4.Controls and Procedures
The Company’s management, including its Chief Executive Officer and Interim Chief Financial Officer, have evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”))Act) as of the end of the reporting period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, the Chief Executive Officer and Interim Chief Financial Officer have concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, the Company’s disclosure controls and procedures are effective such that material information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified by the Securities and Exchange Commission’s rules and forms and is accumulated and communicated to management, including the Company’s principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
During the secondthird quarter of fiscal 2018,2021, there were no changes to the Company’s internal control over financial reporting (as defined in RuleRules 13a-15(f) and 15d-15(f) of the Exchange Act) that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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OTHER INFORMATION
Item 1. | Legal Proceedings |
As a result primarily of certain former manufacturing operations, Avnet has incurred and may have future liability under various federal, state and local environmental laws and regulations, including those governing pollution and exposure to, and the handling, storage and disposal of, hazardous substances. For example, under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, and similar state laws, Avnet is and may be liable for the costs of cleaning up environmental contamination on or from certain of its current or former properties, and at off-site locations where the Company disposed of wastes in the past. Such laws may impose joint and several liability. Typically, however, the costs for clean up at such sites are allocated among potentially responsible parties based upon each party’s relative contribution to the contamination, and other factors.
Pursuant to SEC regulations, including but not limited to Item 103 of Regulation S-K, the Company regularly assesses the status of and developments in pending environmental and other compliance related legal proceedings to determine whether any such proceedings should be identified specifically in this discussion of legal proceedings, and has concluded that no particular pending legal proceeding requires public disclosure. Based on the information known to date, management believes that the Company has appropriately accrued in its consolidated financial statements for its share of the estimable costs of environmental and other compliance related matters.
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.regulations. 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.
This Quarterly Report on Form 10-Q (“Quarterly Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act with respect to the financial condition, results of operations and business of the Company. You can find many of these statements by looking for words like “believes,” “plans,” “expects,” “anticipates,” “should,” “will,” “may,” “estimates” or similar expressions in this Quarterly Report or in documents incorporated by reference in this Quarterly Report. These forward-looking statements are subject to numerous assumptions, risks and uncertainties. You should understand that the following important factors, in addition to those discussed elsewhere in this Quarterly Report and in the Company’s Annual Report on Form 10-K for the fiscal year ended July 1, 2017, could affect the Company’s future results of operations, and could cause those results or other outcomes to differ materially from those expressed or implied in the forward-looking statements:
Item 1A. |
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Any forward-looking statement speaks only as of the date on which that statement is made. Except as required by law, the Company assumes no obligation to update any forward-looking statement to reflect events or circumstances that occur after the date on which the statement is made.
The discussion of Avnet’sthe Company’s business and operations should be read together with the risk factors contained in Item 1A of its Annual Report on Form 10-K for the fiscal year ended July 1, 2017,June 27, 2020 and the revised risk factors contained in Item 1A of its Quarterly Report on Form 10-Q for the fiscal quarter ended October 3, 2020, which describe various risks and uncertainties to which the Company is or may become subject. These risks and uncertainties have the potential to affect Avnet’sthe Company’s business, financial condition, results of operations, cash flows, strategies or prospects in a material and adverse manner. As of December 30, 2017,April 3, 2021, there have been no material changes to the risk factors set forth in the Company’s Annual Report on Form 10-K for the fiscal year ended July 1, 2017.June 27, 2020 other than as revised by those risk factors contained in the Company’s Quarterly Reports on Form 10-Q for the fiscal quarters ended October 3, 2020 and January 2, 2021.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
TheIn August 2019, the Company’s Board of Directors has approvedamended the Company’s existing share repurchase program, increasing the cumulative total of upauthorized share repurchases to $1.95$2.95 billion of the Company’s common stock understock. During the Company’s share repurchase program, which includes an increase of $200 million approved in November 2017. The following table includes the Company’s monthly purchases of the Company’s common stock during the secondthird quarter of fiscal 2018,2021, the Company did not repurchase any shares under the share repurchase program which is partresulting in $469.0 million of a publicly announced plan.availability under the share repurchase program as of April 3, 2021.
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| Total Number of |
| Approximate Dollar |
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| Total |
| Average |
| Shares Purchased |
| Value of Shares That |
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| Price |
| as Part of Publicly |
| May Yet Be |
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| of Shares |
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| Purchased |
| Share |
| or Programs |
| Plans or Programs |
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October |
| 527,300 |
| $ | 40.55 |
| 527,300 |
| $ | 305,612,000 |
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November |
| 805,100 |
| $ | 39.51 |
| 805,100 |
| $ | 473,802,000 |
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December |
| 350,825 |
| $ | 40.39 |
| 350,825 |
| $ | 459,632,000 |
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Item 6. | Exhibits |
Exhibit | | |
Number |
| Exhibit |
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31.1* | | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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31.2* | | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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32.1** | | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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32.2** | | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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101.INS* | | XBRL |
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101.SCH* | | XBRL Taxonomy Extension Schema Document. |
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101.DEF* | | XBRL Taxonomy Extension Definition Linkbase Document. |
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101.CAL* | | XBRL Taxonomy Extension Calculation Linkbase Document. |
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101.LAB* | | XBRL Taxonomy Extension Label Linkbase Document. |
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101.PRE* | | XBRL Taxonomy Extension Presentation Linkbase Document. |
* | Filed herewith. |
** | Furnished herewith. The information in these exhibits shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to liability under that section, and shall not be incorporated by reference into any |
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: April 30, 2021
| AVNET, INC. | |
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| By: | /s/ |
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Date: January 26, 2018
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