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 October 2, 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,October 21, 2021, the total number of shares outstanding of the registrant’s Common Stock was 119,945,29399,222,109 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 | |
18 | |
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Item 3. Quantitative and Qualitative Disclosures About Market Risk | |
25 | |
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26 | |
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26 | |
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26 | |
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | |
27 | |
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28 | |
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29 |
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
| | | | | | | |
|
| October 2, |
| July 3, |
| ||
| | 2021 | | 2021 |
| ||
| | (Thousands, except share |
| ||||
| | amounts) |
| ||||
ASSETS | | | | | | | |
Current assets: | | | | | | | |
Cash and cash equivalents | | $ | 299,101 | | $ | 199,691 | |
Receivables | |
| 3,720,296 | |
| 3,576,130 | |
Inventories | |
| 3,283,825 | |
| 3,236,837 | |
Prepaid and other current assets | |
| 161,845 | |
| 150,763 | |
Total current assets | |
| 7,465,067 | |
| 7,163,421 | |
Property, plant and equipment, net | |
| 351,873 | |
| 368,452 | |
Goodwill | |
| 823,953 | |
| 838,105 | |
Intangible assets, net | |
| 23,074 | |
| 28,539 | |
Operating lease assets | | | 257,614 | | | 265,988 | |
Other assets | |
| 289,728 | |
| 260,917 | |
Total assets | | $ | 9,211,309 | | $ | 8,925,422 | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | |
Current liabilities: | | | | | | | |
Short-term debt | | $ | — | | $ | 23,078 | |
Accounts payable | |
| 2,467,743 | |
| 2,401,357 | |
Accrued expenses and other | | | 588,340 | | | 572,457 | |
Short-term operating lease liabilities | |
| 57,256 | |
| 58,346 | |
Total current liabilities | |
| 3,113,339 | |
| 3,055,238 | |
Long-term debt | |
| 1,389,689 | |
| 1,191,329 | |
Long-term operating lease liabilities | | | 230,350 | | | 239,838 | |
Other liabilities | |
| 332,332 | |
| 354,833 | |
Total liabilities | |
| 5,065,710 | |
| 4,841,238 | |
Commitments and contingencies (Note 7) | | | | | | | |
Shareholders’ equity: | | | | | | | |
Common stock $1.00 par; authorized 300,000,000 shares; issued 99,336,434 shares and 99,601,393 shares, respectively | |
| 99,336 | |
| 99,601 | |
Additional paid-in capital | |
| 1,631,667 | |
| 1,622,160 | |
Retained earnings | |
| 2,593,367 | |
| 2,516,170 | |
Accumulated other comprehensive loss | |
| (178,771) | |
| (153,747) | |
Total shareholders’ equity | |
| 4,145,599 | |
| 4,084,184 | |
Total liabilities and shareholders’ equity | | $ | 9,211,309 | | $ | 8,925,422 | |
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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 |
|
| | | | | | |
| | First Quarters Ended | ||||
|
| October 2, |
| October 3, | ||
| | 2021 | | 2020 | ||
| | (Thousands, except per share amounts) | ||||
Sales | | $ | 5,584,695 | | $ | 4,723,059 |
Cost of sales | |
| 4,925,002 | |
| 4,206,979 |
Gross profit | |
| 659,693 | |
| 516,080 |
Selling, general and administrative expenses | |
| 486,178 | |
| 471,158 |
Restructuring, integration and other expenses | |
| 5,272 | |
| 26,420 |
Operating income | |
| 168,243 | |
| 18,502 |
Other expense, net | |
| (409) | |
| (19,498) |
Interest and other financing expenses, net | |
| (22,844) | |
| (22,301) |
Income (loss) before taxes | |
| 144,990 | |
| (23,297) |
Income tax expense (benefit) | |
| 33,672 | |
| (4,408) |
Net income (loss) | | $ | 111,318 | | $ | (18,889) |
| | | | | | |
Earnings (loss) per share: | | | | | | |
Basic | | $ | 1.12 | | $ | (0.19) |
Diluted | | $ | 1.10 | | $ | (0.19) |
| | | | | | |
Shares used to compute earnings per share: | | | | | | |
Basic | |
| 99,647 | |
| 98,897 |
Diluted | |
| 101,116 | |
| 98,897 |
Cash dividends paid per common share | | $ | 0.24 | | $ | 0.21 |
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 |
|
| | | | | | |
| | First Quarters Ended | ||||
|
| October 2, |
| October 3, | ||
| | 2021 | | 2020 | ||
| | (Thousands) | ||||
Net income (loss) | | $ | 111,318 | | $ | (18,889) |
Other comprehensive income (loss), net of tax: | | | | | | |
Foreign currency translation and other | |
| (29,036) | |
| 90,373 |
Pension adjustments, net | |
| 4,012 | |
| 9,623 |
Total comprehensive income | | $ | 86,294 | | $ | 81,107 |
See notes to consolidated financial statements.
4
AVNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
| | | | | | | | | | | | | | | | | | |
|
| | |
| | |
| | |
| | |
| Accumulated |
| | | |
| | Common | | Common | | Additional | | | | | Other | | Total | |||||
| | Stock- | | Stock- | | Paid-In | | Retained | | Comprehensive | | Shareholders’ | ||||||
| | Shares | | Amount | | Capital | | Earnings | | (Loss) Income | | Equity | ||||||
| | (Thousands) | ||||||||||||||||
Balance, July 3, 2021 | |
| 99,601 | | $ | 99,601 | | $ | 1,622,160 | | $ | 2,516,170 | | $ | (153,747) | | $ | 4,084,184 |
Net income | |
| — | |
| — | |
| — | |
| 111,318 | |
| — | |
| 111,318 |
Translation adjustments and other | |
| — | |
| — | |
| — | |
| — | |
| (29,036) | |
| (29,036) |
Pension liability adjustments, net | | | — | | | — | | | — | | | — | | | 4,012 | | | 4,012 |
Cash dividends | |
| — | |
| — | |
| — | |
| (23,893) | |
| — | |
| (23,893) |
Repurchases of common stock | |
| (275) | |
| (275) | | | — | |
| (10,228) | | | — | |
| (10,503) |
Stock-based compensation | |
| 10 | | | 10 | | | 9,507 | | | — | | | — | | | 9,517 |
Balance, October 2, 2021 | |
| 99,336 | | $ | 99,336 | | $ | 1,631,667 | | $ | 2,593,367 | | $ | (178,771) | | $ | 4,145,599 |
| | | | | | | | | | | | | | | | | | |
|
| | |
| | |
| | |
| | |
| 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 |
See notes to consolidated financial statements.
5
AVNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| | | | | | |
| | First Quarters Ended | ||||
|
| October 2, |
| October 3, | ||
| | 2021 | | 2020 | ||
| | (Thousands) | ||||
Cash flows from operating activities: | | | | | | |
Net income (loss) | | $ | 111,318 | | $ | (18,889) |
| | | | | | |
Non-cash and other reconciling items: | | | | | | |
Depreciation | |
| 21,833 | |
| 21,845 |
Amortization | |
| 5,210 | |
| 20,117 |
Amortization of operating lease assets | | | 13,751 | | | 14,079 |
Deferred income taxes | |
| (3,259) | |
| 6,614 |
Stock-based compensation | |
| 9,178 | |
| 4,961 |
Impairments | |
| — | |
| 15,166 |
Other, net | |
| 2,603 | |
| 10,898 |
Changes in (net of effects from businesses acquired and divested): | | | | | | |
Receivables | |
| (169,992) | |
| (7,116) |
Inventories | |
| (73,971) | |
| (136,426) |
Accounts payable | |
| 85,217 | |
| 228,740 |
Accrued expenses and other, net | |
| (32,856) | |
| (37,545) |
Net cash flows (used) provided by operating activities | |
| (30,968) | |
| 122,444 |
| | | | | | |
Cash flows from financing activities: | | | | | | |
Borrowings under accounts receivable securitization, net | |
| 59,300 | |
| 166,900 |
Borrowings (repayments) under senior unsecured credit facility, net | | | 118,716 | |
| (234,190) |
Borrowings (repayments) under bank credit facilities and other debt, net | |
| (734) | |
| (545) |
Repurchases of common stock | |
| (9,566) | |
| — |
Dividends paid on common stock | |
| (23,893) | |
| (20,756) |
Other, net | |
| (1,337) | |
| 281 |
Net cash flows provided (used) by financing activities | |
| 142,486 | |
| (88,310) |
| | | | | | |
Cash flows from investing activities: | | | | | | |
Purchases of property, plant and equipment | |
| (12,025) | |
| (19,998) |
Acquisitions of assets and businesses | |
| — | |
| (18,700) |
Other, net | |
| 318 | |
| 753 |
Net cash flows used for investing activities | |
| (11,707) | |
| (37,945) |
| | | | | | |
Effect of currency exchange rate changes on cash and cash equivalents | |
| (401) | |
| 9,829 |
| | | | | | |
Cash and cash equivalents: | | | | | | |
— increase | | | 99,410 | | | 6,018 |
— at beginning of period | | | 199,691 | | | 477,038 |
— at end of period | | $ | 299,101 | | $ | 483,056 |
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 ofPreparing 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 aredo not necessarily indicative ofindicate 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, 2017.3, 2021.
Certain reclassifications have been made in prior periods and theFiscal year
The Company operates on a “52/53 week” fiscal year, and fiscal 2022 contains 52 weeks compared to date current periods to conformfiscal 2021, which contained 53 weeks. As a result, the first quarter of fiscal 2022, contained 13 weeks compared to the current period presentation.first quarter of fiscal 2021, which contained 14 weeks.
NewRecently adopted accounting pronouncements
In December 2017,2019, the SecuritiesFASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes (Topic 740) (“ASU No. 2019-12”), which simplifies the income tax accounting, eliminates certain exceptions within ASC Topic 740, Income Taxes, and Exchange Commissionclarifies certain aspects of the current guidance to promote consistency among reporting entities. Most amendments within ASU No. 2019-12 are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. The Company’s adoption of ASU No. 2019-12 beginning the first quarter of fiscal 2022 did not have a material impact on the Company’s Consolidated Financial Statements.
Recently issued Staff Accounting Bulletinaccounting pronouncements
In March 2020, the FASB issued ASU No. 1182020-04, 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 GAAP 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 compared to current GAAP. This update isapply to derivatives 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 2017-12No. 2020-04 and ASU No. 2021-01, but does not currently expect a material impact on its consolidated financial statements.the Company’s 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
67
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
presentation of net periodic benefit cost2. Receivables
The Company’s receivables and the Company does not believe adoption of this standard will have a material impact on its 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,”allowance for further information on the components of net periodic pension cost.credit losses were as follows:
| | | | | | |
| | October 2, | | July 3, | ||
| | 2021 | | 2021 | ||
| | (Thousands) | ||||
Receivables | | $ | 3,808,214 | | $ | 3,664,290 |
Allowance for Credit Losses | | | (87,918) | | | (88,160) |
In October 2016, the FASB issued Accounting Standards Update No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory (“ASU 2016-16”). The update amends accounting 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 of 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 update will be effective for the Company in the first quarter of fiscal 2020, using a modified retrospective approach. The Company is currently evaluating the impact of the adoption of ASU 2016-02 on its consolidated financial statements.
In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers, as amended (“ASU 2014-09”), to supersede nearly all existing revenue recognition guidance under GAAP. The core principles of 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 to be received 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.
The Company expects to adopthad 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 the adoption of ASU 2014-09. For the revenue streams assessed, the Company does not anticipate a material impactfollowing activity in the timing or amount of revenue recognized.
The Company’s analysis and evaluation ofallowance for credit losses during 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 deductible for tax purposes.
Dragon Innovation
In August 2017, the Company acquired Dragon Innovation, Inc. (“Dragon”), a provider of manufacturing logistics services to entrepreneurs. The impact of this 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 endfirst quarters of fiscal 20182022 and the income tax on the gain to be finalized during fiscal 2019.2021:
| | | | | | |
| | October 2, | | October 3, | ||
| | 2021 | | 2020 | ||
| | (Thousands) | ||||
Balance at beginning of the period | | $ | 88,160 | | $ | 65,018 |
Effect of adopting credit loss accounting standard | | | — | | | 17,205 |
Credit Loss Provisions | | | 4,174 | | | 1,786 |
Credit Loss Recoveries | | | (276) | | | (126) |
Receivables Write offs | | | (3,193) | | | (4,023) |
Foreign Currency Effect and Other | | | (947) | | | 1,667 |
Balance at end of the period | | $ | 87,918 | | $ | 81,527 |
8
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company received 2.8 million shares of the Buyer’s common stock at closing (the “Shares”), which has been recorded within “Marketable securities” on the Company’s Consolidated Balance Sheets. Unrealized and realized gains or 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 six 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.
9
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
4.3. Goodwill and long-livedintangible assets
Goodwill
The following table presents the change in goodwill by reportable segment for the sixthree months ended December 30, 2017. All of the accumulated impairment was recognized in fiscal 2009.October 2, 2021.
| | | | | | | | | |
|
| Electronic |
| |
| | | ||
| | Components | | Farnell | | Total | |||
| | (Thousands) | |||||||
Carrying value at July 3, 2021 (1) | | $ | 310,582 | | $ | 527,523 | | $ | 838,105 |
Foreign currency translation | |
| (3,489) | |
| (10,663) | |
| (14,152) |
Carrying value at October 2, 2021 (1) | | $ | 307,093 | | $ | 516,860 | | $ | 823,953 |
|
|
|
|
|
|
|
|
|
|
|
| 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 |
8
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 a reporting unit is less than its 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, (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.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,October 2, 2021 and July 1, 2017,3, 2021, respectively.
| | | | | | | | | | | | | | | | | | | |
| | October 2, 2021 | | July 3, 2021 |
| ||||||||||||||
| | Acquired | | Accumulated | | Net Book | | Acquired | | Accumulated | | Net Book |
| ||||||
|
| Amount |
| Amortization |
| Value |
| Amount(1) |
| Amortization |
| Value |
| ||||||
| | (Thousands) |
| ||||||||||||||||
Customer related | | $ | 318,429 | | $ | (307,121) | | $ | 11,308 | | $ | 324,416 | | $ | (312,392) | | $ | 12,024 | |
Trade name | |
| 56,024 | |
| (46,340) | |
| 9,684 | |
| 57,184 | |
| (45,019) | |
| 12,165 | |
Technology and other | |
| 56,697 | |
| (54,615) | |
| 2,082 | |
| 57,809 | |
| (53,459) | |
| 4,350 | |
| | $ | 431,150 | | $ | (408,076) | | $ | 23,074 | | $ | 439,409 | | $ | (410,870) | | $ | 28,539 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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 prior fiscal years.
10
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Intangible asset amortization expense from continuing operations was $21.8$5.2 million and $9.8 million for the second quarters of fiscal 2018 and 2017, respectively, and $47.3 million and $11.8$20.1 million for the first six monthsquarters of fiscal 20182022 and 2017,2021, respectively. Intangible assets have a weighted average remaining useful life of approximately 3 years.
The following table presents the estimated future amortization expense for the remainder of fiscal 2018,2022 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 |
2022 |
|
| 12,685 |
2023 |
|
| 3,703 |
Thereafter |
|
| 241 |
Total |
| $ | 269,743 |
| | | |
Fiscal Year |
| | |
Remainder of fiscal 2022 | | $ | 10,037 |
2023 | | | 6,534 |
2024 | |
| 3,191 |
2025 | |
| 1,472 |
2026 | |
| 1,472 |
2027 | |
| 368 |
Total | | $ | 23,074 |
4. Debt
Short-term debt consists of the following (in(carrying balances in thousands):
| | | | | | | | | | | | | | |||||||||||||
| | October 2, | | July 3, | | October 2, | | July 3, | | |||||||||||||||||
| | 2021 |
| 2021 |
| 2021 |
| 2021 | | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
|
| 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 |
| | — | | | 1.24 | % | | $ | — | | $ | 23,078 | |
Accounts receivable securitization program |
| 1.93 | % |
| — |
|
|
| 220,000 |
|
| — |
| |||||||||||||
Short-term debt |
|
|
|
|
|
|
| $ | 243,351 |
| $ | 50,113 |
| | | | | | | | $ | — | | $ | 23,078 | |
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.
9
TheAVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Long-term debt consists of the following (carrying balances in thousands):
| | | | | | | | | | | | | |
| | October 2, | | July 3, | | October 2, | | July 3, | | ||||
| | 2021 |
| 2021 |
| 2021 |
| 2021 | | ||||
| | Interest Rate | | Carrying Balance |
| ||||||||
Revolving credit facilities: | | | | | | | | | | | | | |
Accounts receivable securitization program | | 0.83 | % | | — | | | $ | 82,200 | | $ | — | |
Credit Facility (due June 2023) | | 1.18 | % | | — | | | | 115,891 | | | — | |
Public notes due: | | | | | | | | | | | | | |
December 2022 | | 4.88 | % | | 4.88 | % | |
| 350,000 | |
| 350,000 | |
April 2026 | | 4.63 | % | | 4.63 | % | | | 550,000 | | | 550,000 | |
May 2031 | | 3.00 | % | | 3.00 | % | | | 300,000 | | | 300,000 | |
Other long-term debt | | 1.40 | % | | 1.22 | % | |
| 792 | |
| 1,185 | |
Long-term debt before discount and debt issuance costs | | | | | | | |
| 1,398,883 | |
| 1,201,185 | |
Discount and debt issuance costs – unamortized | | | | | | | |
| (9,194) | |
| (9,856) | |
Long-term debt | | | | | | | | $ | 1,389,689 | | $ | 1,191,329 | |
In August 2021, the Company has anamended and extended for two years its trade accounts receivable securitization program (the “Program”“Securitization Program”) in the United States with a group of financial institutions to allowinstitutions. The Securitization Program allows the Company to transfer, on an ongoing revolving basis, an undivided interest in a designated pool of trade accounts receivable, to provide security or collateral for borrowings 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$772.1 million and $807.5$717.4 million at December 30, 2017,October 2, 2021, and July 1, 2017,3, 2021, 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 a0.75%. The facility fee of 0.40%.
11
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Long-term debt consistson the unused balance of the following (in thousands):facility is up to 0.35%.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 30, 2017 |
| July 1, 2017 |
| December 30, 2017 |
| July 1, 2017 |
| ||||
|
| 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 |
|
December 2021 |
| 3.75 | % |
| 3.75 | % |
|
| 300,000 |
|
| 300,000 |
|
December 2022 |
| 4.88 | % |
| 4.88 | % |
|
| 350,000 |
|
| 350,000 |
|
April 2026 |
| 4.63 | % |
| 4.63 | % |
|
| 550,000 |
|
| 550,000 |
|
Other long-term debt |
| 1.36 | % |
| 1.36 | % |
|
| 451 |
|
| 642 |
|
Long-term debt before discount and debt issuance costs |
|
|
|
|
|
|
|
| 1,500,451 |
|
| 1,742,612 |
|
Discount and debt issuance costs - unamortized |
|
|
|
|
|
|
|
| (12,385) |
|
| (13,400) |
|
Long-term debt |
|
|
|
|
|
|
| $ | 1,488,066 |
| $ | 1,729,212 |
|
The Company has a five-year $1.25 billion senior unsecured revolving credit facility (the “Credit Facility”) with a syndicate of banks, consistingwhich expires in June 2023. It consists 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 requiring the Company to maintain minimum interest coverage and leverage ratios, which the Company was in compliance with as of December 30, 2017,October 2, 2021, and July 1, 2017. 3, 2021.
As of December 30, 2017,October 2, 2021, and July 1, 2017,3, 2021, there were $2.0$1.2 million and $3.1$1.3 million, respectively, in letters of credit issued under the Credit Facility.
As of December 30, 2017,October 2, 2021, the carrying value and fair value of the Company’s total debt was $1.73$1.39 billion and $1.80$1.47 billion, respectively. At July 1, 2017,3, 2021, the carrying value and fair value of the Company’s total debt was $1.78$1.21 billion and $1.85$1.30 billion, respectively. Fair value for the public notes was estimated based upon quoted market prices and, for other forms of debt, fair value approximates carrying value due to the market based variable nature of the interest rates on those debt agreements.facilities.
10
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
5. Leases
Substantially all the Company’s leases are classified as operating leases and are predominately related to real property for distribution centers, office space, and integration facilities with a lease term of up to 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):
| | | | | | |
| | First Quarters Ended | ||||
| | October 2, | | October 3, | ||
| | 2021 |
| 2020 | ||
Operating lease cost | | $ | 17,847 | | $ | 18,402 |
Variable lease cost | | | 6,118 | | | 6,288 |
Total lease cost | | $ | 23,965 | | $ | 24,690 |
Future minimum operating lease payments as of October 2, 2021, are as follows (in thousands):
| | | | |
Fiscal Year | | | | |
Remainder of fiscal 2022 | | $ | 50,480 | |
2023 | |
| 58,378 | |
2024 | |
| 41,960 | |
2025 | |
| 33,060 | |
2026 | |
| 28,426 | |
Thereafter | |
| 133,533 | |
Total future operating lease payments | | | 345,837 | |
Total imputed interest on operating lease liabilities | | | (58,231) | |
Total operating lease liabilities | | $ | 287,606 | |
Other information pertaining to operating leases consists of the following:
| | | | | | |
| | First Quarters Ended | ||||
| | October 2, | | October 3, | ||
| | 2021 |
| 2020 | ||
Operating Lease Term and Discount Rate | | | | | | |
Weighted-average remaining lease term in years | | 9.0 | | | 9.3 | |
Weighted-average discount rate | | 3.8 | % | | 3.8 | % |
11
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Supplemental cash flow information related to the Company’s operating leases was as follows (in thousands):
| | | | | | |
| | First Quarters Ended | ||||
| | October 2, | | October 3, | ||
| | 2021 |
| 2020 | ||
Supplemental Cash Flow Information: | | | | | ||
Cash paid for operating lease liabilities | | $ | 14,826 | | $ | 14,710 |
Operating lease assets obtained from new operating lease liabilities | | | 7,578 | | | 21,718 |
6. Derivative financial instruments
Many of the Company’s subsidiaries purchase and sell products in currencies other than their functional currencies. Thiscurrencies, which subjects the Company to the risks associated with fluctuations in foreign currency exchange rates. The Company reducesuses economic hedges to reduce this risk by utilizing natural hedging (e.g.(i.e., offsetting receivables and payables in the same foreign currency) as well as byand creating offsetting positions through the use of derivative financial instruments primarily(primarily forward foreign exchange contracts typically with maturities of less than 60 days, (“economic hedges”), but no longer than one year.year). The Company continues to have exposure to foreign currency risks to the extent they are not economically hedged. The Company adjusts any economic hedges to fair value through the consolidated statements of operations primarily within “other income (expense),“Other 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,October 2, 2021, and July 1, 2017.3, 2021. 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:
| | | | | | | |
| | October 2, |
| July 3, |
| ||
| | 2021 | | 2021 | | ||
| | (Thousands) | | ||||
Prepaid and other current assets | | $ | 6,835 | | $ | 15,722 | |
Accrued expenses and other | | | 13,557 | | | 23,994 | |
|
|
|
|
|
|
|
|
|
| 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 |
|
12
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.AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The amounts recorded to other income (expense),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) |
|
| | | | | | | |
| | First Quarters Ended | | ||||
| | October 2, |
| October 3, |
| ||
| | 2021 | | 2020 | | ||
| | (Thousands) | | ||||
Net derivative financial instrument loss | | $ | (8,771) | | $ | (7,816) | |
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.
7. Commitments and contingencies
From time to time, the Company may become a party to, or be otherwise involved in, various lawsuits, claims, investigations and other legal proceedings arising in the ordinary course of conducting its business. While litigation is subject to inherent uncertainties, management does not anticipate that any such matters will have a material adverse effect on the Company’s financial condition, liquidity, or results of operations.
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 regarding 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 onesingle reporting period.
As of December 30, 2017October 2, 2021, and July 1, 2017,3, 2021, the Company had aggregate estimated liabilities of $14.2$14.7 million classified within accrued expenses and other for such compliance-related matters that were reasonably estimable as of such dates.
During the secondfirst quarter 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.
8. 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%23.2% in the secondfirst quarter of fiscal 2018.2022. During the secondfirst quarter of fiscal 2018,2022, the Company’s effective tax rate was favorablyunfavorably impacted primarily by 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. increases to valuation allowances.
During the secondfirst quarter of fiscal 2017,2021, the Company’s effective tax rate on its loss before taxes was a benefit of 46.7%18.9%. During the first quarter of fiscal 2021, the Company’s effective tax rate 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)(i) the release of unrecognized tax benefit reserves and (ii) 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 (iii) the tax expense created from remeasuring net deferred tax assets as 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 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.
1413
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:
| | | | | | | |||||||||||||
| | First Quarters Ended | |||||||||||||||||
|
| October 2, |
| October 3, | |||||||||||||||
| | 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 |
| | $ | 3,752 | | $ | 3,938 |
Total net periodic pension cost within selling, general and administrative expenses | | | 3,752 | | | 3,938 | |||||||||||||
| | | | | | | |||||||||||||
Interest cost |
|
| 5,783 |
|
| 3,774 |
|
| 11,566 |
|
| 7,548 |
| |
| 3,947 | |
| 3,976 |
Expected return on plan assets |
|
| (13,757) |
|
| (10,588) |
|
| (27,514) |
|
| (21,176) |
| |
| (12,284) | |
| (12,420) |
Amortization of prior service credits |
|
| (393) |
|
| (393) |
|
| (786) |
|
| (786) |
| ||||||
Amortization of prior service cost | |
| 1 | |
| 75 | |||||||||||||
Recognized net actuarial loss |
|
| 3,746 |
|
| 3,851 |
|
| 7,492 |
|
| 7,702 |
| |
| 4,086 | |
| 5,151 |
Pension settlement charge |
|
| 13,984 |
|
| — |
|
| 13,984 |
|
| — |
| ||||||
Net periodic pension cost |
| $ | 13,230 |
| $ | 7,492 |
| $ | 12,477 |
| $ | 14,984 |
| ||||||
Total net periodic pension benefit within other expense, net | | | (4,250) | | | (3,218) | |||||||||||||
| | | | | | | |||||||||||||
Net periodic pension (benefit) cost | | $ | (498) | | $ | 720 |
|
|
The Company contributedmade $8.0 million to of contributions during the Plans during thefirst six monthsquarter of fiscal 20182022 and expects to make an additional contributioncontributions to the PlansPlan of up to $8.0 million in the remainder of fiscal 2018.2022.
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 secondfirst quarter and six months ended December 30, 2017,October 2, 2021, the Company repurchased 1.70.3 million and 3.6 million shares respectively, under this program for a total cost of $67.4 million and $139.4 million, respectively.$10.5 million. As of December 30, 2017,October 2, 2021, the Company had $459.6$458.5 million remaining under its share repurchase authorization.
Common stock dividend
In November 2017,August 2021, the Company’s Board of Directors approved a dividend of $0.18$0.24 per common share and dividend payments of $21.6$23.9 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.September 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.
1614
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
11. Earnings per share
| | | | | | |
| | First Quarters Ended | ||||
|
| October 2, | | October 3, | ||
| | 2021 |
| 2020 | ||
| | (Thousands, except per share data) | ||||
Numerator: | | | |
| | |
Net income (loss) | | $ | 111,318 | | $ | (18,889) |
| | | | | | |
Denominator: | | | | | | |
Weighted average common shares for basic earnings per share | |
| 99,647 | |
| 98,897 |
Net effect of dilutive stock-based compensation awards | |
| 1,469 | |
| — |
Weighted average common shares for diluted earnings per share | |
| 101,116 | |
| 98,897 |
Basic earnings (loss) per share | | $ | 1.12 | | $ | (0.19) |
Diluted earnings (loss) per share | | $ | 1.10 | | $ | (0.19) |
Stock options excluded from earnings per share calculation due to anti-dilutive effect | | | 897 | | | 875 |
For the first quarter of fiscal 2021, 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.
12. Additional cash flow information
Non-cash investing and financing activities and supplemental cash flow information were as follows:
| | | | | | ||||||||
| | First Quarters Ended | |||||||||||
|
| October 2, |
| October 3, | |||||||||
| | 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 |
| | $ | 4,508 | | $ | 3,173 |
Non-cash Financing Activities: |
|
|
|
|
|
|
| | | | | | |
Unsettled share repurchases |
| $ | 3,971 |
|
| — |
| | $ | 937 | | | — |
Supplemental Cash Flow Information: |
|
|
|
|
|
|
| | | | | | |
Interest |
| $ | 48,061 |
| $ | 61,062 |
| | $ | 11,636 | | $ | 12,538 |
Income taxes |
| $ | 65,245 |
| $ | 67,200 |
| ||||||
Income tax net payments | | | 27,977 | | | 19,258 |
Included in cash and cash equivalents as of December 30, 2017,October 2, 2021, and July 1, 2017,3, 2021, was $5.2$3.4 million and $208.3$3.8 million, respectively, of cash equivalents, which was primarily comprised of investment grade money market funds and overnight time deposits.
15
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.
| | | | | | |
| | First Quarters Ended | ||||
| | October 2, | | October 3, | ||
| | 2021 |
| 2020 | ||
|
| (Thousands) | ||||
Sales: |
| |
|
| |
|
Electronic Components | | $ | 5,129,497 | | $ | 4,382,148 |
Farnell | | | 455,198 | | | 340,911 |
| | | 5,584,695 | | | 4,723,059 |
Operating income: | | | | | | |
Electronic Components | | $ | 162,462 | | $ | 84,440 |
Farnell | | | 49,593 | | | 11,959 |
| | | 212,055 | | | 96,399 |
Corporate | | | (33,301) | | | (31,302) |
Restructuring, integration and other expenses | |
| (5,272) | |
| (26,420) |
Amortization of acquired intangible assets and other | | | (5,239) | | | (20,175) |
Operating income | | $ | 168,243 | | $ | 18,502 |
| | | | | | ��� |
Sales, by geographic area: | | | | | | |
Americas (1) | | $ | 1,258,811 | | $ | 1,205,695 |
EMEA (2) | |
| 1,747,579 | |
| 1,480,674 |
Asia/Pacific (3) | |
| 2,578,305 | |
| 2,036,690 |
Sales | | $ | 5,584,695 | | $ | 4,723,059 |
(1) | Includes sales from the United States of $1.16 billion and $1.13 billion for the first quarters ended October 2, 2021, and October 3, 2020, respectively. |
(2) | Includes sales from Germany and Belgium of $697.1 million and $307.6 million, respectively, for the first quarter ended October 2, 2021. Includes sales from Germany and Belgium of $574.8 million and $294.4 million, respectively, for the first quarter ended October 3, 2020. |
(3) | Includes sales from China (including Hong Kong), Taiwan and Singapore of $826.8 million, $1.20 billion and $264.0 million, respectively, for the first quarter ended October 2, 2021. Includes sales from China (including Hong Kong), Taiwan and Singapore of $631.8 million, $916.3 million and $272.0 million, respectively, for the first quarter ended October 3, 2020. |
1716
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.
| | | | | | | |
| | October 2, | | July 3, |
| ||
| | 2021 | | 2021 |
| ||
|
| (Thousands) | | ||||
Property, plant, and equipment, net, by geographic area: | | | | | | | |
Americas (1) | | $ | 138,380 | | $ | 146,042 | |
EMEA (2) | |
| 178,887 | |
| 185,753 | |
Asia/Pacific | |
| 34,606 | |
| 36,657 | |
Property, plant, and equipment, net | | $ | 351,873 | | $ | 368,452 | |
18
(1) | Includes property, plant and equipment, net, of $135.0 million and $142.7 million as of October 2, 2021, and July 3, 2021, respectively, in the United States. |
(2) | Includes property, plant and equipment, net, of $74.1 million, $81.0 million and $19.9 million in Germany, the United Kingdom and Belgium, respectively, as of October 2, 2021; and $77.9 million, $83.5 million and $20.9 million in Germany, the United Kingdom and Belgium, respectively, as of July 3, 2021. |
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 and prior
During fiscal 2018, the Company executed certain restructuring actions in an effort to integrate acquisitions2021 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 established during fiscal 2018 is presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Facility |
|
| Asset |
|
|
|
|
|
|
| |
|
| Severance |
| Exit Costs |
| Impairments |
| Other |
| Total |
| |||||
|
| (Thousands) |
|
|
|
| ||||||||||
Fiscal 2018 restructuring expenses |
| $ | 32,976 |
|
| 157 |
|
| 936 |
|
| 120 |
| $ | 34,189 |
|
Cash payments |
|
| (19,253) |
|
| (26) |
|
| — |
|
| (73) |
|
| (19,352) |
|
Non-cash amounts |
|
| — |
|
| — |
|
| (936) |
|
| — |
|
| (936) |
|
Other, principally foreign currency translation |
|
| 25 |
|
| 4 |
|
| — |
|
| — |
|
| 29 |
|
Balance at December 30, 2017 |
| $ | 13,748 |
| $ | 135 |
| $ | — |
| $ | 47 |
| $ | 13,930 |
|
Severance expense recorded in the first six months of fiscal 2018 related to the reduction, or planned reduction of approximately 600 employees, primarily in executive management, operations, 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 million in restructuring expenses recorded during the first six months of fiscal 2018, $28.7 million related to EC, $4.2 million related to PF and $1.3 million related to corporate executive and business support functions. The Company expects the majority of the remaining amounts to be paid by the end of fiscal 2018.
19
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Fiscal 2017
During fiscal 2017,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 six monthsquarter of fiscal 20182022 related to the remaining restructuring liabilities from continuing operations established during fiscal 2017:2021 and prior:
| | | | | | | | | |
| | | | | Facility | | | ||
|
| | |
| and Contract |
| | ||
| | Severance |
| Exit Costs |
| Total | |||
| | (Thousands) | |||||||
Balance at July 3, 2021 | | $ | 35,099 | | $ | 4,863 | | $ | 39,962 |
Cash payments | |
| (11,892) | | | (1,319) | | | (13,211) |
Changes in estimates, net | | | (330) | | | 0 | | | (330) |
Other, principally foreign currency translation | |
| (359) | | | (41) | | | (400) |
Balance at October 2, 2021 | | $ | 22,518 | | $ | 3,503 | | $ | 26,021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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 2018.2022.
2017
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. The following important factors, in addition to those discussed elsewhere in this Quarterly Report, and the Company’s Annual Report on Form 10-K for the fiscal year ended July 3, 2021, 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, or warehouse modernization and relocation efforts; risks related to cyber-attacks, other privacy and security incidents and information systems failures, 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, liquidity, and access to financing; constraints on employee retention and hiring; geopolitical events; 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 Avnet and the significant factors that influenced the Company’s performance during the quarter ended December 30, 2017,October 2, 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 Annual Report on Form 10-K for the fiscal year ended July 1, 2017.3, 2021. The Company operates on a “52/53 week” fiscal year and fiscal 2022 contains 52 weeks compared to 53 weeks in fiscal 2021. As a result, the first quarter of fiscal 2022 contained 13 weeks and the first quarter of fiscal 2021 contained 14 weeks. This extra week in the first quarter of fiscal 2021 impacts the year-over-year analysis in this MD&A.
There areThe discussion of the Company’s results of operations includes references to the impact of foreign currency translation in the discussion of the Company’s results of operations.translation. 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 impactresult 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 denominatedresult 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.”
18
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. Additionally, the Company has adjusted sales for the impact of the termination of the Texas Instruments (“TI”) distribution agreement between fiscal years. Sales taking into account these adjustments are referred to as “organic sales.” |
| Operating income excluding (i) restructuring, integration and other expenses, (see Restructuring, Integration and Other Expenses in this MD&A), |
The reconciliation of operating income to adjusted operating income is presented in the following table:
| | | | | |||||||||||||||
| | First Quarters Ended | |||||||||||||||||
|
| October 2, |
| October 3, | |||||||||||||||
| | 2021 |
| 2020 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||
|
| Second Quarters Ended |
| Six Months Ended |
| ||||||||||||||
|
| December 30, |
| December 31, |
| December 30, |
| December 31, |
| ||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||||||||
|
| (Thousands) |
| ||||||||||||||||
| | (Thousands) | |||||||||||||||||
Operating income |
| $ | 87,018 |
| $ | 124,230 |
| $ | 156,973 |
| $ | 253,744 |
| | $ | 168,243 | | $ | 18,502 |
Restructuring, integration and other expenses |
|
| 36,762 |
|
| 30,400 |
|
| 83,156 |
|
| 59,869 |
| |
| 5,272 | |
| 26,420 |
Amortization of acquired intangible assets and other |
|
| 21,877 |
|
| 9,829 |
|
| 47,462 |
|
| 12,207 |
| |
| 5,239 | |
| 20,175 |
Adjusted operating income |
| $ | 145,657 |
| $ | 164,459 |
| $ | 287,591 |
| $ | 325,820 |
| | $ | 178,754 | | $ | 65,097 |
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.
2119
OVERVIEW
OVERVIEW
Organization
Organization
Avnet, Inc., founded in 1921 and incorporated in New York in 1955, together with its consolidated subsidiaries (the(collectively, the “Company” or “Avnet”), is a leading global value-addedtechnology distributor and solutions provider. Avnet has served customers’ evolving needs for an entire century. Avnet supports customers at each stage of electronic components. Avnet creates a vital link inproduct’s lifecycle, from idea to design and from prototype to production. Avnet’s unique position at the center of the technology value chain enables it to accelerate the design and supply chain that connectsstages of product development so customers can realize revenue faster. Decade after decade, Avnet helps its customers and suppliers around the world’s leading electronic component manufacturersworld realize the transformative possibilities of technology. 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. suppliers in every major technology segment to serve 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, “Segment information” to the Company’s consolidated financial statements included in this Quarterly Report on Form 10-Q.
Executive Summary
Sales forof $5.58 billion in the secondfirst quarter of fiscal 20182022 were $4.52 billion, an increase18.2% higher than the prior year first quarter sales of 5.8% from$4.72 billion. Excluding the impact of changes in foreign currency, sales for the second quarter of fiscal 2017 of $4.27 billion. The increase inincreased 17.5% as compared to 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 increasedprior year over year by 1.9% with both EC and PF contributing to the increase. first quarter.
Gross profit margin forof 11.8% increased 88 basis points compared to 10.9% in the secondfirst quarter of fiscal 2018 remained relatively flat compared2021. This increase is primarily due to strong overall demand for electronic components and improvements in product and customer mix, partially offset by an unfavorable geographic regional sales mix.
Operating income of $168.2 million was $149.7 million higher than the secondfirst quarter of fiscal 2017. EC2021. Operating income margin was 3.0% in the first quarter of fiscal 2022, as compared to 0.4% in the prior year first quarter. The increase in operating income margin is the result of increases in sales and in gross profit margin decreased 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.
Avnetlower operating income margin was 1.9% in the second quarter of fiscal 2018 as compared with 2.9% in the second quarter of fiscal 2017. Both periods included amortization and restructuring, integration and other expenses. Excluding these expenses from both periods, adjustedAdjusted operating income margin was 3.2% in the secondfirst quarter of fiscal 20182022 as compared to 3.8%1.4% in the secondfirst quarter of fiscal 2017. EC2021, an increase of 182 basis points. This increase in adjusted operating income margin decreased 104 basis points year over year to 3.1%is primarily due to the declineincreases in sales and gross profit margin. PF operating income margin, increased 105 basis points year over year to 10.0% due primarily to revenue growthpartially offset by increases in selling, general and the realization of post-acquisition cost synergies. administrative expenses.
2220
Sales
Sales
Reported sales were the same as organic sales in the first quarter of fiscal 2022. The following tables presenttable presents the reconciliation of reported sales to organic sales for the second quarters and first six monthsquarter of fiscal 2017. 2021 by geographic region and by operating group.
| | | | | | | | | | | | | | | ||||||||||||||||
| | | Estimated | | | | | | Organic | |||||||||||||||||||||
| Sales | | Extra | | Organic | | | | Sales | |||||||||||||||||||||
| As Reported | | Week in | | Sales | | TI Sales | | Adj for TI | |||||||||||||||||||||
| Q1-Fiscal | | Q1-Fiscal | | Q1-Fiscal | | Q1-Fiscal | | Q1-Fiscal | |||||||||||||||||||||
| 2021 |
| 2021(1) |
| 2021 |
| 2021(2) |
| 2021(2) | |||||||||||||||||||||
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| As Reported |
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| Organic |
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| As Reported |
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| Year-Year % |
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| Year-Year % |
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| and Organic |
| As Reported |
| Change in |
| Organic |
| Change in |
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| Q2-Fiscal |
| Year-Year |
| Constant |
| Year-Year |
| Constant |
| |||||||||||||||||||
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| 2018 |
| % Change |
| Currency |
| % Change |
| Currency |
| |||||||||||||||||||
|
| (Dollars in thousands) |
| |||||||||||||||||||||||||||
| (Thousands) | |||||||||||||||||||||||||||||
Avnet |
| $ | 4,521,636 |
| 5.8 | % |
| 3.1 | % |
| 4.6 | % |
| 1.9 | % |
| $ | 4,723,059 | | $ | 306,000 | | $ | 4,417,059 | | $ | 240,984 | | $ | 4,176,075 |
Avnet by region |
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| | | | | | | | | | | | | | |
Americas |
| $ | 1,210,251 |
| (3.4) | % |
| — |
|
| (4.8) | % |
| — |
|
| $ | 1,205,695 | | $ | 77,000 | | $ | 1,128,695 | | $ | 68,500 | | $ | 1,060,195 |
EMEA |
|
| 1,506,015 |
| 9.1 |
|
| 0.8 | % |
| 7.0 |
|
| (1.2) | % |
| | 1,480,674 | | | 97,000 | | | 1,383,674 | | | 102,910 | | | 1,280,764 |
Asia |
|
| 1,805,370 |
| 10.1 |
|
| 10.2 |
|
| 9.8 |
|
| 9.9 |
|
| | 2,036,690 | | | 132,000 | | | 1,904,690 | | | 69,574 | | | 1,835,116 |
Avnet by segment |
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Avnet by operating group | | | | | | | | | | | | | | | ||||||||||||||||
EC |
| $ | 4,163,519 |
| 4.0 | % |
| 1.4 | % |
| 4.0 | % |
| 1.4 | % |
| $ | 4,382,148 | | $ | 284,000 | | $ | 4,098,148 | | $ | 240,984 | | $ | 3,857,164 |
PF |
|
| 358,117 |
| 33.0 |
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| 27.5 |
|
| 12.3 |
|
| 7.7 |
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Farnell | | 340,911 | | | 22,000 | | | 318,911 | | | — | | | 318,911 |
___________
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| Second Quarter Ended |
| Six Months Ended |
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| As |
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| As |
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| Reported |
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| Organic Sales |
| Reported |
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| Organic Sales |
| ||||||
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| Fiscal 2017 |
| Acquisitions (1) |
| Fiscal 2017 |
| Fiscal 2017 |
| Acquisitions (1) |
| Fiscal 2017 |
| ||||||
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| (Thousands) |
| ||||||||||||||||
Avnet |
| $ | 4,273,559 |
| $ | 49,639 |
| $ | 4,323,198 |
| $ | 8,391,663 |
| $ | 378,352 |
| $ | 8,770,015 |
|
Avnet by region |
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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 |
|
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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) | Sales adjusted for the impact of the termination of the Texas Instruments (“TI”) distribution agreement. |
SecondThe following table presents reported and organic sales growth rates for the first quarter of fiscal 2022 as compared to fiscal 2021 by geographic region and by operating group.
| | | | | | | | | | | | | | | |
| | | | Sales | | | | Organic | | Sales | |||||
| | | | As Reported | | | | Sales | | Adj for TI | |||||
| | Sales | | Year-Year % | | Organic | | Year-Year % | | Year-Year % | |||||
| | As Reported | | Change in | | Sales | | Change in | | Change in | |||||
| | Year-Year | | Constant | | Year-Year | | Constant | | Constant | |||||
| | % Change | | Currency |
| % Change |
| Currency |
| Currency(1) | |||||
Avnet | | 18.2 | % | | 17.5 | % | | 26.4 | % | | 25.6 | % | | 32.9 | % |
Avnet by region | | | | | | | | | | | | | | | |
Americas | | 4.4 | % | | 4.4 | % | | 11.5 | % | | 11.5 | % | | 18.7 | % |
EMEA | | 18.0 | | | 16.2 | | | 26.3 | | | 24.3 | | | 34.3 | |
Asia | | 26.6 | | | 26.4 | | | 35.4 | | | 35.2 | | | 40.3 | |
Avnet by operating group | | | | | | | | | | | | | | | |
EC | | 17.1 | % | | 16.5 | % | | 25.2 | % | | 24.6 | % | | 32.3 | % |
Farnell | | 33.5 | | | 30.1 | | | 42.7 | | | 39.0 | | | 39.0 | |
| | | | | | | | | | | | | | | |
___________
(1) | Sales growth rates excluding the impactof the termination of the TI distribution agreement. |
Sales of $5.58 billion for the first quarter of fiscal 2022 were up $861.6 million, or 18.2%, from the prior year first quarter sales of $4.52 billion$4.72 billion. Sales in constant currency in the first quarter of fiscal 2022 increased 5.8%by 17.5% 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’sCompany’s Asia and EMEA regions and Asiasales growth at Farnell. Organic sales in constant currency excluding TI sales in the first quarter of fiscal 2022 were 32.9% higher than sales in the first quarter of fiscal 2021, reflecting sales growth in both operating groups across all regions driven by strong demand across many product verticals were offset by a decreaseglobally for electronic components.
EC sales of $5.13 billion in the first quarter of fiscal 2022 increased $747.3 million or 17.1% from the prior year first quarter sales of $4.38 billion. On an organic basis, EC sales excluding TI increased 32.3% year over year in constant currency, reflecting sales growth in all three regions. The increase in sales in the Americas regionCompany’s EC operating group is primarily due primarily to supplier channelimprovements in overall market demand and program changes.stronger demand in certain industry sectors, particularly the transportation and industrial sectors.
21
OrganicFarnell sales for the first quarter of fiscal 2022 were $455.2 million, an increase of $114.3 million or 33.5% from the prior year first quarter sales of $340.9 million. Sales in constant currency increased 1.9%30.1% year over the prior year second quarter with both operating groups contributing to this increase driven by overallyear. These increases were primarily a result of increased market demand partially offset byin all three regions.
As a result of the recent notification the Company received from Maxim Integrated Products, Inc. (“Maxim”) related to the termination of the Company’s distribution agreement for the Electronic Components operating group, the Company may experience lower sales and gross profit in the future if the impact of supplier program changes.
Sales for the first six months of fiscal 2018 were $9.18 billion, an increase of 9.4% as compared to sales of $8.39 billion for the first six months of fiscal 2017 primarily due to the acquisition of PF. Organic sales for the first six months of 2018 increased $412.6 million over the first six months of fiscal 2017 organic sales primarily due to increases in EMEA and Asia,termination is not offset by declinessales growth, gross margin improvements or operating cost reductions. Sales from Maxim products represented approximately 3% of total sales in the Americas.fiscal 2021.
23
Gross Profit and Gross Profit Margins
Gross profit for the secondfirst quarter of fiscal 20182022 was $602.5$659.7 million, an increase of $16.3$143.6 million, or 2.8%27.8%, from the secondfirst quarter of fiscal 20172021 gross profit of $586.2 million driven primarily by the acquisition of PF.$516.1 million. Gross profit margin remained relatively flat withincreased to 11.8% (or 88 basis points) from the year ago second quarter.
ECfirst quarter of fiscal 2021 gross profit margin decreased year over year primarily due to supplier program changes and a sales mix shift to the lower-margin Asia region. Asia sales represented 42% of the total EC sales in the second quarter of fiscal 2018 as compared with 40% in the second quarter of fiscal 2017. PF gross profit margin decreased year over year primarily10.9%, driven by customer mix.
Gross profit and gross profit margins were $1.22 billion and 13.2%, respectively, for the first six months of fiscal 2018 as compared with $1.11 billion and 13.2%, respectively, for the first six months of fiscal 2017. Decreases in EC’s gross profit margin due to supplier program changes were offset by increases in gross profit margin in both operating groups. The increases in gross profit margin in both operating groups are primarily due to strong demand for electronic components that resulted in a favorable pricing environment, partially offset by unfavorable geographic region sales mix. Sales in the acquisitionhigher gross profit margin western regions represented approximately 54% of PF.sales in the first quarter of fiscal 2022, as compared to 57% during the first quarter of fiscal 2021.
Selling, General and Administrative Expenses
Selling, general and administrative expenses (“SG&A expenses”) were $478.7$486.2 million in the secondfirst quarter of fiscal 2018,2022, an increase of $47.1$15.0 million, or 10.9%3.2%, from the secondfirst quarter of fiscal 2017.2021. The year-over-year increase in SG&A expenses was primarily due to the acquisition of PF,increases in costs to support sales growth, increased costs related to inflation including merit pay increases for employees, and to a lesser extent 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 millionweakening of additional amortization expense year over year from the acquisition of PF. 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 secondfirst quarter of fiscal 2018,2022, SG&A expenses as a percentagewere 8.7% of sales were 10.6% and as a percentage73.7% of gross profit, were 79.5%, as compared with 10.1%10.0% and 73.6%91.3%, respectively, in the secondfirst quarter of fiscal 2017.2021. The increasesdecrease in SG&A expenses as a percentage of sales and as a percentage of gross profit is due primarily to the acquisition of PF and the impact of supplier program changes on EC’sresults from operating leverage created from higher sales, and gross profit.
SG&A expenses for the first six months of fiscal 2018 were $974.9 million, or 10.6% of sales, as compared with $795.2 million, or 9.5% of sales,increase in the first six 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. The year-over-year increasemargin, and lower amortization expense, partially offset by increases in SG&A expenses was primarily due to the acquisition of PF and the impact of supplier program changes on EC’s sales and gross profit.expenses.
Restructuring, Integration, and Other Expenses
As a result of the aforementioned supplier channel and program changes, the focus on lowering overall operating costs, and the integration of PF, the Company has incurred certain restructuring costs. In addition, the Company incurred integration, accelerated depreciation, acquisition/divestiture and other costs. Integration costs are primarily related to the integration of acquired businesses including PF, the integration of certain regional and global businesses including Avnet after the TS divestiture, and incremental costs incurred as part of the consolidation, relocation, and closure of warehouse 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.
24
The Company recorded restructuring, integration and other expenses of $36.8$5.3 million during the secondfirst quarter of fiscal 2018.2022, substantially all of which was related to integration costs. The Company recorded $12.9 million of restructuring costs in the second quarter of fiscal 2018 in order to realize approximately $2.0 million in expected annualized operating cost savings once such restructuring actions initiated before the end of the second quarter of fiscal 2018 are completed. During the second quarter of fiscal 2018, the Company incurred integration costs of $8.2 million, accelerated depreciation of $16.9 million, other costs of $0.2 million and a reversal of $1.4 million for changes in estimates for costs associated with prior year restructuring actions. The after taxafter-tax impact of restructuring, integration and other expenses were $27.8$4.3 million and $0.23$0.04 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. The after tax impact of restructuring, integration and other expenses for the first six months of fiscal 2018 was $57.4 million and $0.47 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 14 “Restructuring expenses” to the Company’s consolidated financial statements included in this Quarterly Report on Form 10-Q.
Operating Income
Operating income for the secondfirst quarter of fiscal 20182022 was $87.0$168.2 million, a decreasean increase of $37.2$149.7 million, from the first quarter of fiscal 2021 operating income of $18.5 million. Adjusted operating income for the first quarter of fiscal 2022 was $178.8 million, an increase of $113.7 million, or 30.0%174.6%, from the secondfirst quarter of fiscal 2017 operating income of $124.2 million.2021. The year over year decreaseyear-over-year increase in adjusted operating income was primarily driven by declinesthe increase in the EC’s Americassales and EMEA regions due primarily to supplier program changes,in gross profit margin, 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.in SG&A expenses.
EC operating income margin decreased 104increased 124 basis points year over year to 3.1% due primarily to supplier program changes partially offset by cost reductions from restructuring actions. PF3.2% and Farnell operating income margin increased 105738 basis points year over year to 10.0% due primarily to sales growth10.9%.
22
Interest and the realization of post-acquisition cost synergies. Other Financing Expenses, Net and Other Expense, Net
Operating income for the first six months of fiscal 2018 was $157.0 million, or 1.7% of consolidated sales, as compared with operating income of $253.7 million, or 3.0%Interest and other financing expenses in the first six months of 2017 primarily driven by declines in EC partially offset by the acquisition of PF.
Interest Expense and Other Income (Expense), Net
Interest expense in the second quarter of fiscal 20182022 was $25.6$22.8 million, a decreasean increase of $1.1$0.5 million, or 4.1%2.4%, as compared with interest expenseand other financing expenses of $26.7$22.3 million in the secondfirst quarter of fiscal 2017. Interest2021. The increase in interest and other financing expenses was primarily related to more outstanding borrowings during the first quarter of fiscal 2022 as compared to the first quarter of fiscal 2021.
During the first quarter of fiscal 2022, the Company had $0.4 million of other expense as compared with $19.5 million of other expense in the first six months of fiscal 2018 was $49.7 million, a decrease of $4.3 million or 7.9%, as compared with interest expense of $54.0 million in the first six months of fiscal 2017. The decrease in interest expense in the second quarter and first six months of fiscal 2018 compared to the second quarter and first six months of fiscal 2017 was primarily related to the impact of the Company’s repayment of its outstanding term loans and borrowings on its revolving credit facilities, which were used to help fund the PF acquisition.
25
During the second quarter of fiscal 2018, the Company had $0.8 million of other income, net, as compared with $36.5 million of2021. The year-over-year differences in other expense net, in the second quarter of fiscal 2017. During the first six months of fiscal 2017, the Company recognized $16.3 million of other income as compared with $50.2 million of other expenses in the first six months of fiscal 2017. In the first six months of fiscal 2018, the Company had foreign currency gainswas primarily due to the strengthening ofequity investment impairment expense included in the Euro compared toother expense in the U.S. Dollar and British Pound. In the secondfirst quarter and first six months of fiscal 2017, the Company incurred additional financing2021, and economicdifferences in foreign currency hedging costs associated withexchange rates between the PF acquisition.first quarters of fiscal 2022 and fiscal 2021.
Income Tax Expense
The Company’s effective tax rate on its income before income taxes from continuing operations was 8.6%23.2% in the secondfirst quarter of fiscal 2018.2022. During the secondfirst quarter of fiscal 2018,2022, the Company’s effective tax rate was favorably impacted primarily by 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 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.allowances.
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.
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 second quarter of fiscal 2018 was $46.7 million, or $0.38 per share on a diluted basis, as compared with $103.2 million, or $0.79 per share on a diluted basis, in the second quarter of fiscal 2017.
26
As a result of the factors described in the preceding sections of this MD&A, the Company’s net income for the first six monthsquarter of fiscal 20182022 was $105.0$111.3 million, or $0.85$1.10 per share on a diluted basis, as compared with $172.1net loss of $18.9 million, or $1.32$0.19 per share on a diluted basis, in the first six monthsquarter of fiscal 2017. 2021.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow
Cash Flow from Operating Activities
During the first six monthsquarter of fiscal 2018,2022, the Company used $59.2$31.0 million of cash flow from its operating activitiesoperations compared to a$122.4 million of cash generation of $240.1 milliongenerated by operations in the first six monthsquarter of fiscal 2017.2021. 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$191.6 million during the first six monthsquarter of fiscal 2018,2022, including increases in accounts receivable of $170.0 million and in inventories of $74.0 million both to support sales growth in the first quarter of fiscal 2022, and a decrease in accrued expenses and other of $32.9 million, offset by an increase in accounts payable of $85.2 million. Comparatively, cash generated from working capital and other was $47.7 million during the first quarter of fiscal 2021, including an increase in accounts payable of $228.7 million, offset by increases in inventories of $410.4$136.4 million and accounts receivable of $7.1 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 receivable of $108.5 million and an increase in accounts payable of $75.3 million. Comparatively, cash generated from working capital and other was $90.8 million during the first six months of fiscal 2017, including a decrease in inventories of $139.7 million and an increase in accounts payable of $133.7 million, partially offset by an increase in accounts receivable of $127.2 million and a decrease in accrued expenses and other of $55.4$37.5 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 six monthsquarter of fiscal 2018,2022, the Company received net proceeds of $78.0$118.7 million under the Company’s accounts receivable securitization program.Credit Facility, and $59.3 million under the Securitization Program. During the first six monthsquarter 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 2018,2022, the Company paid dividends on common stock of $43.6$23.9 million and repurchased $135.5$9.6 million of common stock.
During the first six monthsquarter of fiscal 2017,2021, the Company received net proceeds of $296.4$166.9 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 LoanSecuritization Program and frommade a net repayment of $234.2 million under the Company’s Credit Facility, respectively.Facility. During the first six monthsquarter of fiscal 2017,2021, 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$20.8 million.
23
Cash Flow from Investing Activities
During the first six monthsquarter of fiscal 2018,2022, the Company used $67.4$12.0 million for capital expenditures primarily related to information system development costs, computer hardware and software purchases and facilities costs compared to $70.4$20.0 million for capital expenditures in the first six monthsquarter of fiscal 2017.2021. During the first six monthsquarter of fiscal 2018,2021, the Company used $14.7paid $18.7 million of cash for acquisitions, which is net of the cash acquired compared to $798.4 million of cash for acquisitions, which is net of the cash acquired in the first six months of fiscal 2017. an asset acquisition.
27
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, there3, 2021. 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 5,4, “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.October 2, 2021. The Company was in compliance with all covenants under the Credit Facility and the Securitization Program as of December 30, 2017.October 2, 2021, and July 3, 2021.
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 secondfirst quarter of fiscal 20182022 was $0.9$116.7 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 first-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$299.1 million as of December 30, 2017,October 2, 2021, of which $568.7$236.5 million was held outside the United States. As of July 1, 2017,3, 2021, the Company held cash and cash equivalents of $836.4$199.7 million, of which $619.5$150.5 million was held outside of the United States.
As of the end of the secondfirst quarter of fiscal 2018,2022, 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$115.9 million in borrowings outstanding and $2.0$1.2 million in letters of credit issued under the Credit Facility, and $220.0$82.2 million in borrowings outstanding under the Securitization Program, resulting in approximately $1.37$1.48 billion of total availability as of December 30, 2017.October 2, 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. The Company currently expects to utilize availability under credit facilities to support working capital and other general corporate purposes to the extent such incremental borrowings do not impact the Company’s investment grade credit rating.
During the secondfirst quarter and first six months of fiscal 2018,2022, the Company had an average daily balance outstanding of approximately $0.1$353.0 million and $5.3 million, respectively, under the Credit Facility and approximately $225.0$139.4 million and $195.0 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 $141.4$62.5 million in cash flows fromfor operating activities over the trailing four fiscal quarters ended December 30, 2017 for continuing operations.October 2, 2021.
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Liquidity is subject to many factors, such as normal business operations as well asand general economic, financial, competitive, legislative, and regulatory factors that are beyond the Company’s control. 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 continually 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 as a resultdo so in the future.
As of the impact of the Act. The Act requires the Company to pay a one-time transition tax on unremitted foreign earnings (the “transition tax”), which the Company expects 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, 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. 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, as of December 30, 2017,October 2, 2021, the Company may repurchase up to an aggregate of $459.6$458.5 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 timing and actual numberDuring the first quarter of shares repurchased will depend on a variety of factors such as share price, corporate and regulatory requirements, and prevailing market conditions. Additionally,fiscal 2022, the Company currently expects to payrepurchased $10.5 million of common stock.
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 secondfirst quarter of fiscal 2018,2022, the Board of Directors approved a dividend of $0.18$0.24 per share, which resulted in $21.6$23.9 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, 2017,3, 2021, 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, 2017,3, 2021, 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,October 2, 2021, approximately 86% of the Company’s debt bears interest at a fixed rate and 14% 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$0.5 million decrease in income from continuing operations before income taxes in the Company’s consolidated statement of operations for the secondfirst quarter of fiscal 2018.2022.
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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”)) 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 secondfirst quarter of fiscal 2018,2022, 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.
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.legal proceedings.
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. 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 onesingle 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, 2017,3, 2021, 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,October 2, 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, 2017.3, 2021.
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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 under the Company’s share repurchase program, which includes an increase of $200 million approved in November 2017.stock. The following table includes the Company’s monthly purchases of the Company’s common stock during the secondfirst quarter of fiscal 2018,2022, under the share repurchase program, which is part of a publicly announced plan.
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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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| | Number | | Price | | as Part of Publicly | | May Yet Be |
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| | of Shares | | Paid per | | Announced Plans | | Purchased under the |
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Period | | Purchased |
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July 4 – July 31 |
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| $ | 468,992,000 | |
August 1 – August 28 |
| 31,415 | | $ | 40.06 |
| 31,415 | | $ | 467,733,000 | |
August 29 – October 2 |
| 243,449 | | $ | 37.97 |
| 243,449 | | $ | 458,489,000 | |
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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 | | | |
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10.1 | | ||
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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: October 29, 2021
| AVNET, INC. | |
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| By: | /s/ |
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Date: January 26, 2018
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