Avnet Third Quarter 2023 Financial Results May 3, 2023 Safe Harbor Statement This document contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, 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," "projected", "plans," "expects," "anticipates," "should," "will," "may," ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 2022 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | --- | --- | --- | |-------------------------------------------------------------------------------------------|------------------------------------------------|-------------------- ...

Avnet, Inc. (NASDAQ:AVT) Q2 2023 Earnings Conference Call February 1, 2023 4:30 PM ET Company Participants Joe Burke - Vice President, Treasury & Investor Relations Phil Gallagher - Chief Executive Officer Ken Jacobson - Chief Financial Officer Conference Call Participants Melissa Fairbanks - Raymond James Ruplu Bhattacharya - Bank of America Matt Sheerin - Stifel Jim Suva - Citigroup William Stein - Truist Securities Joe Quatrochi - Wells Fargo Operator Welcome to the Avnet Second Quarter Fiscal Year 2023 ...

Avnet Second Quarter 2023 Financial Results February 1, 2023 Safe Harbor Statement This document contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, 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," "projected", "plans," "expects," "anticipates," "should," "will," ...

[PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section provides Avnet, Inc.'s unaudited consolidated financial statements and detailed notes for the first quarter ended October 1, 2022 [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents Avnet, Inc.'s unaudited consolidated financial statements for Q1 FY23, covering balance sheets, income, equity, and cash flows, with detailed accounting notes [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) | Metric | October 1, 2022 (Thousands) | July 2, 2022 (Thousands) | | :----------------------- | :-------------------------- | :----------------------- | | Total Assets | $10,968,406 | $10,388,532 | | Total Liabilities | $6,949,071 | $6,195,772 | | Total Shareholders' Equity | $4,019,335 | $4,192,760 | - Total assets increased by **$579.87 million**, and total liabilities increased by **$753.299 million** from July 2, 2022, to October 1, 2022, while total shareholders' equity decreased by **$173.425 million**[8](index=8&type=chunk) [Consolidated Statements of Operations](index=5&type=section&id=Consolidated%20Statements%20of%20Operations) | Metric | Q1 FY23 (Thousands) | Q1 FY22 (Thousands) | YoY Change (Thousands) | YoY Change (%) | | :--------------------------------- | :------------------ | :------------------ | :--------------------- | :------------- | | Sales | $6,750,133 | $5,584,695 | $1,165,438 | 20.9% | | Gross Profit | $768,173 | $659,693 | $108,480 | 16.4% | | Operating Income | $290,537 | $168,243 | $122,294 | 72.7% | | Net Income | $184,261 | $111,318 | $72,943 | 65.5% | | Basic EPS | $1.96 | $1.12 | $0.84 | 75.0% | | Diluted EPS | $1.93 | $1.10 | $0.83 | 75.5% | | Cash dividends paid per common share | $0.29 | $0.24 | $0.05 | 20.8% | [Consolidated Statements of Comprehensive Income](index=6&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) | Metric | Q1 FY23 (Thousands) | Q1 FY22 (Thousands) | | :--------------------------------- | :------------------ | :------------------ | | Net income | $184,261 | $111,318 | | Foreign currency translation and other | $(201,663) | $(29,036) | | Pension adjustments, net | $9,866 | $4,012 | | Total comprehensive (loss) income | $(7,536) | $86,294 | - Total comprehensive income shifted from a gain of **$86.294 million** in Q1 FY22 to a loss of **$(7.536) million** in Q1 FY23, primarily due to a significant increase in foreign currency translation losses[13](index=13&type=chunk) [Consolidated Statements of Shareholders' Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Shareholders'%20Equity) | Metric | July 2, 2022 (Thousands) | October 1, 2022 (Thousands) | | :-------------------------- | :----------------------- | :-------------------------- | | Total Shareholders' Equity | $4,192,760 | $4,019,335 | | Net income | - | $184,261 | | Cash dividends | - | $(26,998) | | Repurchases of common stock | - | $(147,902) | - Shareholders' equity decreased from **$4.19 billion** to **$4.02 billion**, influenced by net income, cash dividends, and significant common stock repurchases totaling **$147.9 million**[16](index=16&type=chunk) [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) | Metric | Q1 FY23 (Thousands) | Q1 FY22 (Thousands) | | :--------------------------------- | :------------------ | :------------------ | | Net cash used for operating activities | $(645,149) | $(30,968) | | Net cash provided by financing activities | $588,385 | $142,486 | | Net cash used for investing activities | $(20,905) | $(11,707) | | Net decrease in cash and cash equivalents | $(72,812) | $99,410 | - The company experienced a significant increase in cash used for operating activities in Q1 FY23 compared to Q1 FY22, primarily driven by higher working capital requirements[20](index=20&type=chunk) [Notes to Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) [1. Basis of presentation and new accounting pronouncements](index=9&type=section&id=1.%20Basis%20of%20presentation%20and%20new%20accounting%20pronouncements) - The early adoption of ASU 2021-08 (Business Combinations) in fiscal year 2023 had no impact on the Company's Consolidated Financial Statements[24](index=24&type=chunk) - The Company is currently evaluating the impact of ASU 2022-04 (Supplier Finance Programs), which is effective for the Company in the first quarter of fiscal 2024[25](index=25&type=chunk) [2. Receivables](index=9&type=section&id=2.%20Receivables) | Metric | October 1, 2022 (Thousands) | July 2, 2022 (Thousands) | | :------------------------ | :-------------------------- | :----------------------- | | Receivables | $4,697,643 | $4,414,904 | | Allowance for Credit Losses | $(106,623) | $(113,902) | | Metric | Q1 FY23 (Thousands) | Q1 FY22 (Thousands) | | :-------------------------- | :------------------ | :------------------ | | Credit Loss Provisions | $1,442 | $4,174 | | Receivables Write Offs | $(3,378) | $(3,193) | [3. Goodwill and intangible assets](index=11&type=section&id=3.%20Goodwill%20and%20intangible%20assets) | Segment | July 2, 2022 (Thousands) | October 1, 2022 (Thousands) | Foreign Currency Translation (Thousands) | | :-------------------- | :----------------------- | :-------------------------- | :--------------------------------------- | | Electronic Components | $291,526 | $279,746 | $(11,780) | | Farnell | $467,307 | $424,082 | $(43,225) | | Total Goodwill | $758,833 | $703,828 | $(55,005) | - Goodwill decreased by **$55.005 million** in Q1 FY23, primarily due to foreign currency translation effects[32](index=32&type=chunk) - Intangible asset amortization expense decreased to **$2.8 million** in Q1 FY23 from **$5.2 million** in Q1 FY22[33](index=33&type=chunk) [4. Debt](index=11&type=section&id=4.%20Debt) | Debt Type | October 1, 2022 (Thousands) | July 2, 2022 (Thousands) | | :------------------------------------ | :-------------------------- | :----------------------- | | Short-term debt | $513,000 | $174,422 | | Long-term debt | $1,825,514 | $1,437,400 | | Total Debt (Carrying Value) | $2,338,514 | $1,611,822 | - The Company amended and extended its **$1.25 billion** revolving credit facility, now expiring in August 2027[37](index=37&type=chunk) - The carrying value of total debt increased from **$1.61 billion** to **$2.34 billion** from July 2, 2022, to October 1, 2022[38](index=38&type=chunk) [5. Leases](index=13&type=section&id=5.%20Leases) | Metric | Q1 FY23 (Thousands) | Q1 FY22 (Thousands) | | :---------------------- | :------------------ | :------------------ | | Operating lease cost | $16,566 | $17,847 | | Variable lease cost | $6,313 | $6,118 | | Total lease cost | $22,879 | $23,965 | | Metric | October 1, 2022 | October 2, 2021 | | :--------------------------------- | :-------------- | :-------------- | | Weighted-average remaining lease term | 8.5 years | 9.0 years | | Weighted-average discount rate | 3.9% | 3.8% | - Cash paid for operating lease liabilities decreased to **$14.062 million** in Q1 FY23 from **$14.826 million** in Q1 FY22[44](index=44&type=chunk) [6. Derivative financial instruments](index=16&type=section&id=6.%20Derivative%20financial%20instruments) - The Company uses economic hedges, primarily forward foreign exchange contracts, to reduce foreign currency exchange rate risk, with maturities typically less than 60 days[47](index=47&type=chunk) | Metric | Q1 FY23 (Thousands) | Q1 FY22 (Thousands) | | :------------------------------- | :------------------ | :------------------ | | Net derivative financial instrument loss | $(359) | $(8,771) | [7. Commitments and contingencies](index=18&type=section&id=7.%20Commitments%20and%20contingencies) - Management does not anticipate that current legal proceedings will have a material adverse effect on the Company's financial condition or liquidity[52](index=52&type=chunk) - Aggregate estimated liabilities for compliance-related matters were **$14.7 million** as of October 1, 2022, and July 2, 2022[53](index=53&type=chunk) [8. Income taxes](index=18&type=section&id=8.%20Income%20taxes) | Metric | Q1 FY23 | Q1 FY22 | | :---------------- | :------ | :------ | | Effective tax rate | 25.0% | 23.2% | - The effective tax rate in Q1 FY23 was unfavorably impacted by increases to unrecognized tax benefit reserves and the mix of income in higher tax jurisdictions[54](index=54&type=chunk) [9. Pension plan](index=18&type=section&id=9.%20Pension%20plan) | Metric | Q1 FY23 (Thousands) | Q1 FY22 (Thousands) | | :------------------------- | :------------------ | :------------------ | | Net periodic pension benefit | $(1,911) | $(498) | - The Company made **$4.0 million** in contributions to its defined benefit pension plan during Q1 FY23 and expects to make an additional **$4.0 million** in contributions for the remainder of fiscal 2023[56](index=56&type=chunk) [10. Shareholders' equity](index=20&type=section&id=10.%20Shareholders'%20equity) - The Company repurchased **3.4 million** shares for **$147.9 million** under its share repurchase program during Q1 FY23, with **$383.4 million** remaining authorization[59](index=59&type=chunk) - A cash dividend of **$0.29** per common share was approved and paid in Q1 FY23, totaling **$27.0 million**[59](index=59&type=chunk) [11. Earnings per share](index=20&type=section&id=11.%20Earnings%20per%20share) | Metric | Q1 FY23 | Q1 FY22 | | :---------------- | :------ | :------ | | Basic EPS | $1.96 | $1.12 | | Diluted EPS | $1.93 | $1.10 | - Both basic and diluted EPS significantly increased in Q1 FY23 compared to Q1 FY22[60](index=60&type=chunk) [12. Additional cash flow information](index=21&type=section&id=12.%20Additional%20cash%20flow%20information) | Metric | Q1 FY23 (Thousands) | Q1 FY22 (Thousands) | | :--------------------------------- | :------------------ | :------------------ | | Capital expenditures incurred but not paid | $11,916 | $4,508 | | Interest paid | $32,855 | $11,636 | | Income tax net payments | $57,426 | $27,977 | - Capital expenditures incurred but not paid, interest paid, and income tax net payments all increased significantly in Q1 FY23 compared to Q1 FY22[64](index=64&type=chunk) [13. Segment information](index=22&type=section&id=13.%20Segment%20information) | Segment | Q1 FY23 Sales (Thousands) | Q1 FY22 Sales (Thousands) | YoY Change (%) | YoY Change (Constant Currency %) | | :-------------------- | :------------------------ | :------------------------ | :------------- | :------------------------------- | | Electronic Components | $6,324,223 | $5,129,497 | 23.3% | 31.4% | | Farnell | $425,910 | $455,198 | (6.4)% | 1.6% | | Segment | Q1 FY23 Operating Income (Thousands) | Q1 FY22 Operating Income (Thousands) | | :-------------------- | :----------------------------------- | :----------------------------------- | | Electronic Components | $267,253 | $162,462 | | Farnell | $51,611 | $49,593 | - EC sales growth was driven by strong market demand and pricing for electronic components, particularly in transportation, industrial, and aerospace and defense sectors[86](index=86&type=chunk) [14. Restructuring expenses](index=23&type=section&id=14.%20Restructuring%20expenses) - Remaining restructuring liabilities from fiscal 2022 and prior were not material as of October 1, 2022[72](index=72&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q1 FY23 financial performance, liquidity, and capital resources, including foreign currency impacts and non-GAAP measures [Overview](index=26&type=section&id=Overview) [Organization](index=26&type=section&id=Organization) - Avnet is a global technology distributor and solutions provider, operating through two primary groups: Electronic Components (EC) and Farnell, serving customers in over 140 countries[80](index=80&type=chunk)[81](index=81&type=chunk) [Results of Operations (Executive Summary)](index=26&type=section&id=Results%20of%20Operations%20(Executive%20Summary)) | Metric | Q1 FY23 | Q1 FY22 | YoY Change (%) | YoY Change (Constant Currency %) | | :-------------------------- | :------ | :------ | :------------- | :------------------------------- | | Sales | $6.75B | $5.58B | 20.9% | 28.9% | | Gross Profit Margin | 11.4% | 11.8% | (43 bps) | - | | Operating Income Margin | 4.3% | 3.0% | 130 bps | - | | Adjusted Operating Income Margin | 4.4% | 3.2% | 115 bps | - | [Sales](index=28&type=section&id=Sales) | Segment/Region | Sales YoY % Change | Sales YoY % Change (Constant Currency) | | :--------------- | :----------------- | :------------------------------------- | | Avnet Total | 20.9% | 28.9% | | Americas | 33.4% | 33.4% | | EMEA | 21.9% | 42.4% | | Asia | 14.1% | 17.5% | | EC | 23.3% | 31.4% | | Farnell | (6.4)% | 1.6% | - Overall sales growth was driven by strong demand and pricing for electronic components across all regions, with foreign currency translation negatively impacting reported sales[85](index=85&type=chunk) [Gross Profit](index=28&type=section&id=Gross%20Profit) | Metric | Q1 FY23 (Millions) | Q1 FY22 (Millions) | YoY Change (%) | | :----------- | :----------------- | :----------------- | :------------- | | Gross Profit | $768.2 | $659.7 | 16.4% | | Gross Profit Margin | 11.4% | 11.8% | (43 bps) | - The decrease in gross profit margin was primarily due to differences in product and customer mix[87](index=87&type=chunk) [Selling, General and Administrative Expenses](index=28&type=section&id=Selling,%20General%20and%20Administrative%20Expenses) | Metric | Q1 FY23 (Millions) | Q1 FY22 (Millions) | YoY Change (%) | | :-------------------------------- | :----------------- | :----------------- | :------------- | | SG&A Expenses | $477.6 | $486.1 | (1.8)% | | SG&A as % of Sales | 7.1% | 8.7% | (160 bps) | | SG&A as % of Gross Profit | 62.2% | 73.7% | (1150 bps) | - The decrease in SG&A expenses was primarily due to foreign currency translation, partially offset by increased support for higher sales volumes[88](index=88&type=chunk) [Operating Income](index=30&type=section&id=Operating%20Income) | Metric | Q1 FY23 (Millions) | Q1 FY22 (Millions) | YoY Change (%) | | :------------------------ | :----------------- | :----------------- | :------------- | | Operating Income | $290.5 | $168.2 | 72.7% | | Adjusted Operating Income | $293.3 | $178.8 | 64.1% | - Operating income increased significantly year-over-year, driven by higher sales and improved operating leverage from lower SG&A expenses as a percentage of sales[91](index=91&type=chunk) - EC operating income margin increased by **106 basis points** to **4.2%**, and Farnell operating income margin increased by **123 basis points** to **12.1%**[91](index=91&type=chunk) [Interest and Other Financing Expenses, Net](index=30&type=section&id=Interest%20and%20Other%20Financing%20Expenses,%20Net) | Metric | Q1 FY23 (Millions) | Q1 FY22 (Millions) | YoY Change (Millions) | | :-------------------------------- | :----------------- | :----------------- | :-------------------- | | Interest and other financing expenses | $45.1 | $22.8 | $22.3 | - The increase in financing expenses was primarily due to higher outstanding borrowings and increased average borrowing rates[92](index=92&type=chunk) [Income Tax](index=30&type=section&id=Income%20Tax) | Metric | Q1 FY23 | Q1 FY22 | | :---------------- | :------ | :------ | | Effective Tax Rate | 25.0% | 23.2% | - The effective tax rate was unfavorably impacted by increases to unrecognized tax benefit reserves and the mix of income in higher tax jurisdictions[93](index=93&type=chunk) [Net Income](index=30&type=section&id=Net%20Income) | Metric | Q1 FY23 (Millions) | Q1 FY22 (Millions) | YoY Change (%) | | :----------- | :----------------- | :----------------- | :------------- | | Net Income | $184.3 | $111.3 | 65.6% | | Diluted EPS | $1.93 | $1.10 | 75.5% | [Liquidity and Capital Resources](index=30&type=section&id=Liquidity%20and%20Capital%20Resources) [Cash Flow from Operating Activities](index=30&type=section&id=Cash%20Flow%20from%20Operating%20Activities) | Metric | Q1 FY23 (Millions) | Q1 FY22 (Millions) | | :--------------------------------- | :----------------- | :----------------- | | Cash used for operations | $(645.1) | $(31.0) | | Cash used for working capital | $(874.8) | $(191.6) | - The significant increase in cash used for operations was primarily due to higher working capital requirements, including increases in accounts receivable (**$419.9 million**) and inventories (**$559.0 million**) to support sales growth[97](index=97&type=chunk) [Cash Flow from Financing Activities](index=32&type=section&id=Cash%20Flow%20from%20Financing%20Activities) | Metric | Q1 FY23 (Millions) | Q1 FY22 (Millions) | | :-------------------------------- | :----------------- | :----------------- | | Net proceeds from Credit Facility | $702.0 | $118.7 | | Net proceeds from Securitization Program | $152.2 | $59.3 | | Common stock repurchases | $(152.4) | $(9.6) | | Dividends paid | $(27.0) | $(23.9) | [Cash Flow from Investing Activities](index=32&type=section&id=Cash%20Flow%20from%20Investing%20Activities) | Metric | Q1 FY23 (Millions) | Q1 FY22 (Millions) | | :------------------- | :----------------- | :----------------- | | Capital expenditures | $28.2 | $12.0 | [Contractual Obligations](index=32&type=section&id=Contractual%20Obligations) - There are no material changes to the Company's long-term debt and lease commitments outside of normal borrowings and repayments[99](index=99&type=chunk) [Financing Transactions](index=32&type=section&id=Financing%20Transactions) - The Company was in compliance with all covenants under its Credit Facility and Securitization Program as of October 1, 2022[100](index=100&type=chunk) - Outstanding borrowings under other short-term debt were **$40.1 million** at the end of Q1 FY23[100](index=100&type=chunk) [Liquidity](index=32&type=section&id=Liquidity) | Metric | October 1, 2022 (Millions) | July 2, 2022 (Millions) | | :------------------------ | :------------------------- | :---------------------- | | Cash and cash equivalents | $80.9 | $153.7 | - As of October 1, 2022, the Company had a total borrowing capacity of **$1.70 billion** under its Credit Facility and Securitization Program, with approximately **$563.2 million** of total availability[106](index=106&type=chunk) - The Company had **$383.4 million** remaining under its share repurchase authorization as of October 1, 2022[107](index=107&type=chunk) [Recently Issued Accounting Pronouncements](index=34&type=section&id=Recently%20Issued%20Accounting%20Pronouncements) - Refers to Note 1 for details on recently issued accounting pronouncements[109](index=109&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=34&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The Company discusses market risks from foreign currency and interest rates, and mitigation strategies including economic hedges and debt structure - The Company economically hedges the majority of its foreign currency exchange exposures to reduce earnings and cash flow volatility[110](index=110&type=chunk)[111](index=111&type=chunk) - As of October 1, 2022, **49%** of the Company's debt bears interest at a fixed rate and **51%** at variable rates. A hypothetical **1.0%** increase in interest rates would result in a **$3.0 million** decrease in income before income taxes[112](index=112&type=chunk) [Item 4. Controls and Procedures](index=36&type=section&id=Item%204.%20Controls%20and%20Procedures) Management confirmed effective disclosure controls and procedures as of October 1, 2022, with no material changes to internal control over financial reporting - The Company's disclosure controls and procedures were evaluated and deemed effective as of the end of the reporting period[113](index=113&type=chunk) - There were no material changes to the Company's internal control over financial reporting during the first quarter of fiscal 2023[114](index=114&type=chunk) [PART II. OTHER INFORMATION](index=36&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section includes legal proceedings, risk factors, equity sales, and a list of exhibits for the reporting period [Item 1. Legal Proceedings](index=36&type=section&id=Item%201.%20Legal%20Proceedings) The Company believes no pending legal proceedings require specific public disclosure and do not materially affect financial position or liquidity - No particular pending legal proceeding requires specific public disclosure[115](index=115&type=chunk) - Estimated liabilities for compliance-related matters were **$14.7 million** as of October 1, 2022, and July 2, 2022[53](index=53&type=chunk)[116](index=116&type=chunk) [Item 1A. Risk Factors](index=38&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors previously disclosed in the Company's Annual Report on Form 10-K for FY2022 - 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 2, 2022, as of October 1, 2022[117](index=117&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=38&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The Board approved a **$600 million** share repurchase plan, with **$147.9 million** repurchased in Q1 FY23, leaving **$383.4 million** authorized - A new share repurchase plan for up to **$600 million** of common stock was approved in May 2022[118](index=118&type=chunk) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :------------------ | :------------------------------- | :--------------------------- | | July 3 – July 30 | 1,177,103 | $43.94 | | July 31 – August 27 | 1,145,699 | $45.56 | | August 28 – October 1 | 1,121,937 | $39.20 | - As of October 1, 2022, approximately **$383.4 million** remained available under the share repurchase authorization[119](index=119&type=chunk) [Item 6. Exhibits](index=39&type=section&id=Item%206.%20Exhibits) This section lists all Form 10-Q exhibits, including agreements, Sarbanes-Oxley certifications, and XBRL documents - Exhibits include a Letter Agreement with the CFO, the Second Amended and Restated Credit Agreement, and certifications pursuant to the Sarbanes-Oxley Act[121](index=121&type=chunk) - XBRL taxonomy extension documents are also included as exhibits[121](index=121&type=chunk) [Signature Page](index=40&type=section&id=Signature%20Page) The report was signed by Kenneth A. Jacobson, Chief Financial Officer, on October 28, 2022 - The report was signed by Kenneth A. Jacobson, Chief Financial Officer, on October 28, 2022[124](index=124&type=chunk)

Avnet, Inc. (NASDAQ:AVT) Q1 2023 Earnings Conference Call October 26, 2022 4:30 PM ET Company Participants Joe Burke - Vice President, Treasury and Investor Relations Phil Gallagher - Chief Executive Officer Ken Jacobson - Chief Financial Officer Conference Call Participants Melissa Fairbanks - Raymond James Matt Sheerin - Stifel Jim Suva - Citigroup William Stein - Truist Securities Ruplu Bhattacharya - Bank of America Joseph Cardoso - JPMorgan Operator Please standby. Our presentation will now begin. Welc ...

PART I [Business Overview](index=3&type=section&id=Item%201.%20Business) Avnet is a global technology distributor and solutions provider, structured into Electronic Components (EC) and Farnell, emphasizing broad supplier base and human capital - Avnet, Inc. is a leading global technology distributor and solutions provider, founded in 1921, serving customers in over 140 countries across all stages of a product's lifecycle[15](index=15&type=chunk) - The company operates through two primary groups: Electronic Components (EC) and Farnell, with operations in the Americas, EMEA, and Asia[16](index=16&type=chunk) EC Operating Group Net Sales by Product (2022) | Product Category | Net Sales % (2022) | | :--------------- | :----------------- | | Semiconductor | ~80% | | IP&E | ~17% | | Computers | ~2% | | Other | ~1% | Farnell Operating Group Net Sales by Product (2022) | Product Category | Net Sales % (2022) | | :--------------- | :----------------- | | Semiconductor | ~21% | | IP&E | ~51% | | Computers | ~7% | | Other | ~21% | Major Product Sales (Millions USD) | Product Category | July 2, 2022 | July 3, 2021 | June 27, 2020 | | :--------------- | :----------- | :----------- | :------------ | | Semiconductors | $18,380.2 | $14,722.8 | $13,440.3 | | IP&E | $4,639.1 | $3,649.0 | $3,146.0 | | Computers | $663.2 | $640.6 | $572.0 | | Other | $628.2 | $522.3 | $476.0 | | **Total Sales** | **$24,310.7**| **$19,534.7**| **$17,634.3** | - As of July 2, 2022, Avnet had approximately **15,300 employees globally**, with **4,500 in the Americas**, **6,600 in EMEA**, and **4,200 in Asia**[33](index=33&type=chunk) - The Board of Directors was **45% racially/ethnically diverse** and **27% women**, while global employees were **over 45% women**[33](index=33&type=chunk) Total Injuries Requiring Medical Treatment | Fiscal Year | Total Injuries | Fatalities | | :---------- | :------------- | :--------- | | FY2022 | 43 | 0 | | FY2021 | 63 | 0 | | FY2202 | 72 | 0 | | FY2019 | 84 | 0 | [Organizational Structure](index=3&type=section&id=Organizational%20Structure) Avnet's structure includes EC and Farnell operating groups, with distinct management and financial reporting across three major regions - Avnet's organizational structure comprises two primary operating groups, Electronic Components (EC) and Farnell, each with distinct management teams and financial reporting across three major economic regions: the Americas, EMEA, and Asia/Pacific[16](index=16&type=chunk) [Electronic Components (EC)](index=3&type=section&id=Electronic%20Components%20(EC)) The EC group serves high-volume customers, distributing semiconductors and IP&E components, offering comprehensive product lifecycle support - The EC operating group primarily serves high-volume customers, distributing semiconductors, IP&E components, and other integrated/embedded components from leading manufacturers[18](index=18&type=chunk) - EC offers comprehensive support throughout the product lifecycle, including design, supply chain, new product introduction, programming, logistics, and post-sales services for markets like automotive, medical, defense, and aerospace[18](index=18&type=chunk) [Farnell](index=5&type=section&id=Farnell) The Farnell group targets lower-volume customers with quick access to electronic components and tools, primarily through e-commerce and the element14 community - The Farnell operating group focuses on lower-volume customers needing quick access to electronic components, kits, tools, industrial automation, and test/measurement products, primarily through an e-commerce channel[22](index=22&type=chunk) - Farnell leverages element14, an industry-leading online community, for engineers to collaborate, access new technologies, and receive expert support[22](index=22&type=chunk) [Major Products](index=6&type=section&id=Major%20Products) Avnet's strength lies in its broad, high-quality supplier base, with no single supplier exceeding 10% of consolidated sales - Avnet's competitive strength lies in its broad and high-quality supplier base, with no single supplier exceeding **10% of consolidated sales** in fiscal years 2020-2022[25](index=25&type=chunk) [Competition & Markets](index=6&type=section&id=Competition%20%26%20Markets) The electronic components industry is highly competitive, driven by inventory, rapid delivery, pricing, and value-added services - The electronic components industry is highly competitive, with major competitors including Arrow Electronics, Future Electronics, World Peace Group, Mouser Electronics, and Digi-Key Electronics[26](index=26&type=chunk) - Key competitive factors include inventory availability, rapid delivery, competitive pricing, and a variety of value-added services such as supply chain management and programming[27](index=27&type=chunk) [Seasonality](index=6&type=section&id=Seasonality) Avnet's business is not materially seasonal, except for geographic sales shifts impacting gross profit and operating income margins - Avnet's business is not materially impacted by seasonality, except for shifts in geographic sales trends from Asia in the first half of a fiscal year to the Americas and EMEA in the second half, affecting gross profit and operating income margins[29](index=29&type=chunk) [Human Capital](index=8&type=section&id=Human%20Capital) Avnet prioritizes its global workforce through diversity, competitive pay, development, health, safety, and feedback mechanisms - Avnet prioritizes its global workforce through investments in diversity and inclusion, competitive pay and benefits, employee development, health and safety, and feedback mechanisms[32](index=32&type=chunk) - The company's DEI vision aims for an employee population reflecting diverse communities and an organizational culture that values varying perspectives for business success[33](index=33&type=chunk) - Avnet offers comprehensive benefits including health, time-off, pension, 401(k), employee stock purchase plans, and educational assistance, alongside wellness programs (THRIVE) and an Employee Assistance Program (EAP)[41](index=41&type=chunk)[43](index=43&type=chunk) - The company provides extensive development and training opportunities, including LinkedIn Learning, Business Book Summaries, mentoring, and leadership programs, alongside annual compliance training[45](index=45&type=chunk) - Avnet maintains a strong focus on health and safety, evidenced by a decline in total injuries requiring medical treatment from **84 in FY2019 to 43 in FY2022**, and implemented robust COVID-19 response measures[46](index=46&type=chunk)[48](index=48&type=chunk) - Employee engagement is fostered through global surveys, with **56% completion in fiscal 2022**, leading to improvements in leadership communication and incentive pay structures[49](index=49&type=chunk) [Available Information](index=13&type=section&id=Available%20Information) Avnet files reports with the U.S. SEC, publicly available on the SEC's website and through Nasdaq - Avnet files its annual, quarterly, and current reports, proxy statements, and other documents with the U.S. SEC, which are publicly available on the SEC's website and through Nasdaq[50](index=50&type=chunk) [Avnet Website](index=13&type=section&id=Avnet%20Website) Extensive company information, including management, products, services, and governance, is available on Avnet's corporate and investor relations websites - Extensive information about Avnet, including management, products, services, and corporate governance, is available on its website (www.avnet.com) and investor relations site (ir.avnet.com)[51](index=51&type=chunk)[53](index=53&type=chunk) [Risk Factors](index=15&type=section&id=Item%201A.%20Risk%20Factors) Avnet faces risks from demand changes, supply chain disruptions, international operations, financial issues, legal matters, and general economic uncertainties - Forward-looking statements are subject to numerous assumptions, risks, and uncertainties, and actual results could differ materially from expectations[55](index=55&type=chunk) - Business and operations risks include changes in customer needs, supply chain disruptions (e.g., semiconductor shortages, Russia-Ukraine conflict), system interruptions, and reliance on key supplier relationships[57](index=57&type=chunk)[59](index=59&type=chunk)[61](index=61&type=chunk)[62](index=62&type=chunk) - International operations, accounting for approximately **77% of sales in fiscal 2022**, are exposed to risks such as repatriation restrictions, foreign currency fluctuations, non-compliance with regulations, trade restrictions, and geopolitical instability[65](index=65&type=chunk)[67](index=67&type=chunk)[69](index=69&type=chunk) - Financial risks encompass inventory value decline due to rapid technological change and market fluctuations, accounts receivable defaults, liquidity and capital resource constraints, and limitations imposed by financing covenants[76](index=76&type=chunk)[77](index=77&type=chunk)[78](index=78&type=chunk)[81](index=81&type=chunk) - Legal and regulatory risks include potential costs and damages from legal proceedings (e.g., intellectual property, product liability) and non-compliance with environmental regulations[91](index=91&type=chunk)[92](index=92&type=chunk) - General risk factors include negative impacts from pandemics (e.g., COVID-19), economic and geopolitical uncertainty (e.g., inflation, Brexit), intense competition, and challenges in employee retention and hiring[93](index=93&type=chunk)[94](index=94&type=chunk)[96](index=96&type=chunk)[97](index=97&type=chunk)[98](index=98&type=chunk)[100](index=100&type=chunk) [Forward-Looking Statements and Risk Factors](index=15&type=section&id=Forward-Looking%20Statements%20and%20Risk%20Factors) This section highlights that forward-looking statements are subject to risks and uncertainties, potentially causing actual results to differ [Business and Operations Risks](index=15&type=section&id=Business%20and%20Operations%20Risks) Risks include customer demand shifts, supply chain disruptions, system interruptions, and reliance on key supplier relationships [Financial Risks](index=21&type=section&id=Financial%20Risks) Financial risks involve inventory value decline, accounts receivable defaults, liquidity constraints, and limitations from financing covenants [Legal and Regulatory Risks](index=25&type=section&id=Legal%20and%20Regulatory%20Risks) Legal and regulatory risks include potential costs from legal proceedings and non-compliance with environmental regulations [General Risk Factors](index=27&type=section&id=General%20Risk%20Factors) General risks encompass pandemics, geopolitical uncertainty, intense competition, and challenges in employee retention and hiring [Unresolved Staff Comments](index=28&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company has no unresolved staff comments to report - No unresolved staff comments are applicable to this report[101](index=101&type=chunk) [Properties](index=30&type=section&id=Item%202.%20Properties) Avnet owns 1.8 million and leases 4.0 million square feet globally, with key facilities in Chandler, Tongeren, Leeds, Poing, Gaffney, Hong Kong, and Phoenix - Avnet owns approximately **1.8 million square feet** and leases approximately **4.0 million square feet** of space globally, with about **28% in the United States**[103](index=103&type=chunk) Key Facilities Summary | Location | Square Footage | Ownership | Primary Use | | :------------------ | :------------- | :-------- | :---------------------------------------- | | Chandler, Arizona | 400,000 | Owned | EC warehousing and value-added operations | | Tongeren, Belgium | 390,000 | Owned | EC warehousing and value-added operations | | Leeds, United Kingdom | 360,000 | Leased | Farnell warehousing and value-added operations | | Poing, Germany | 300,000 | Owned | EC warehousing and value-added operations | | Gaffney, South Carolina | 220,000 | Owned | Farnell warehousing | | Hong Kong, China | 210,000 | Leased | EC warehousing | | Phoenix, Arizona | 180,000 | Leased | Corporate and EC Americas headquarters | [Legal Proceedings](index=30&type=section&id=Item%203.%20Legal%20Proceedings) Avnet believes it has accrued for estimable legal costs, and while resolution may impact operations, it is not expected to materially affect financial position or liquidity - Management believes that the company has appropriately accrued for estimable costs of legal proceedings in its consolidated financial statements[105](index=105&type=chunk) - Resolution of current legal matters and investigations is not expected to materially adversely affect financial position or liquidity, but could be material to results of operations in any single reporting period[106](index=106&type=chunk) [Mine Safety Disclosures](index=30&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to Avnet, Inc - Mine Safety Disclosures are not applicable[107](index=107&type=chunk) PART II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=31&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Avnet's common stock is listed on Nasdaq under AVT; the Board determines dividends, and a new $600 million share repurchase plan was approved - Avnet's common stock is listed on the Nasdaq Global Select Market under the symbol **AVT**[108](index=108&type=chunk) - As of July 29, 2022, there were **1,464 registered holders** of Avnet's common stock[110](index=110&type=chunk) Cumulative 5-Year Total Return (July 1, 2017 - July 2, 2022) | Entity | 7/1/2017 | 6/30/2018 | 6/29/2019 | 6/27/2020 | 7/3/2021 | 7/2/2022 | | :----------------- | :------- | :-------- | :-------- | :-------- | :------- | :------- | | Avnet, Inc. | $100 | $112.35 | $120.76 | $71.17 | $112.17 | $121.36 | | Nasdaq Composite | $100 | $123.60 | $133.22 | $169.11 | $245.60 | $188.07 | | Peer Group | $100 | $98.48 | $98.60 | $91.26 | $186.62 | $165.98 | - In May 2022, the Board approved a new **$600 million share repurchase plan**[114](index=114&type=chunk)[159](index=159&type=chunk) - As of July 2, 2022, **$531.3 million** remained under this authorization[114](index=114&type=chunk)[159](index=159&type=chunk) Issuer Purchases of Equity Securities (Q4 Fiscal 2022) | Period | Total Shares Purchased | Average Price per Share | Value Remaining Under Plans | | :---------------- | :--------------------- | :---------------------- | :-------------------------- | | April 3 – April 30| 472,600 | $38.63 | $359,757,000 | | May 1 – May 28 | 421,198 | $46.75 | $595,698,000 | | May 29 – July 2 | 1,485,475 | $43.36 | $531,286,000 | [Market Information](index=31&type=section&id=Market%20Information) Avnet's common stock is listed on the Nasdaq Global Select Market under the symbol AVT [Dividends](index=31&type=section&id=Dividends) The Board of Directors determines future dividends based on the company's financial condition and capital requirements [Record Holders](index=31&type=section&id=Record%20Holders) As of July 29, 2022, there were 1,464 registered holders of Avnet's common stock [Stock Performance Graphs and Cumulative Total Returns](index=31&type=section&id=Stock%20Performance%20Graphs%20and%20Cumulative%20Total%20Returns) Avnet's five-year stock performance showed a 121.36% cumulative return, trailing the Nasdaq Composite and peer group [Issuer Purchases of Equity Securities](index=33&type=section&id=Issuer%20Purchases%20of%20Equity%20Securities) A new $600 million share repurchase plan was approved in May 2022, with $531.3 million remaining as of July 2, 2022 [Reserved](index=33&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved and contains no information [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=33&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Fiscal 2022 saw sales growth to $24.31 billion, improved gross profit, surged operating income, $26.3 million in Russian-Ukraine conflict expenses, and negative operating cash flow - Fiscal 2022 sales were **$24.31 billion**, a **24.5% increase** from fiscal 2021, primarily due to strong demand and pricing for electronic components across all regions[122](index=122&type=chunk) - Gross profit margin increased by **73 basis points to 12.2%** in fiscal 2022, driven by improved pricing, product, customer mix, and geographic sales mix[122](index=122&type=chunk) - Operating income for fiscal 2022 was **$939.0 million** (**3.9% margin**), a substantial increase from **$281.4 million** (**1.4% margin**) in fiscal 2021[123](index=123&type=chunk)[137](index=137&type=chunk) - The company incurred **$26.3 million** in Russian-Ukraine conflict-related expenses in fiscal 2022, mainly for credit loss reserves on Russian receivables and product write-downs[121](index=121&type=chunk)[135](index=135&type=chunk) - Net income in fiscal 2022 was **$692.4 million**, or **$6.94 diluted EPS**, compared to **$193.1 million**, or **$1.93 diluted EPS**, in fiscal 2021[141](index=141&type=chunk) - Cash used in operating activities was **$219.3 million** in fiscal 2022, primarily to support sales growth through increases in accounts receivable and inventories[143](index=143&type=chunk)[152](index=152&type=chunk) - Financing activities in fiscal 2022 included **$300.0 million** from new notes, **$274.9 million** from the Securitization Program, and **$235.0 million** from bank credit facilities, alongside **$184.4 million** in share repurchases and **$98.5 million** in dividends[144](index=144&type=chunk) [Recent Global Events and Uncertainties](index=35&type=section&id=Recent%20Global%20Events%20and%20Uncertainties) This section discusses the impact of recent global events and uncertainties on the company's operations and financial performance [Executive Summary](index=35&type=section&id=Executive%20Summary) This section provides a high-level overview of Avnet's financial performance and key operational highlights for the reporting period [Sales](index=36&type=section&id=Sales) Avnet's fiscal 2022 sales increased 24.5% to $24.31 billion, driven by strong demand and pricing for electronic components across all regions Sales by Operating Group (Millions USD) | Operating Group | July 2, 2022 | % of Total | July 3, 2021 | % of Total | June 27, 2020 | % of Total | 2022 to 2021 % Change | 2021 to 2020 % Change | | :-------------- | :----------- | :--------- | :----------- | :--------- | :------------ | :--------- | :-------------------- | :-------------------- | | EC | $22,503.3 | 92.6% | $18,030.5 | 92.3% | $16,340.1 | 92.7% | 24.8% | 10.3% | | Farnell | $1,807.4 | 7.4% | $1,504.2 | 7.7% | $1,294.2 | 7.3% | 20.2% | 16.2% | | **Total Avnet** | **$24,310.7**| | **$19,534.7**| | **$17,634.3** | | | | Sales by Geographic Region (Millions USD) | Geographic Region | July 2, 2022 | % of Total | July 3, 2021 | % of Total | June 27, 2020 | % of Total | 2022 to 2021 % Change | 2021 to 2020 % Change | | :---------------- | :----------- | :--------- | :----------- | :--------- | :------------ | :--------- | :-------------------- | :-------------------- | | Americas | $5,896.0 | 24.3% | $4,662.5 | 23.9% | $4,755.3 | 27.0% | 26.5% | (2.0)% | | EMEA | $7,838.1 | 32.2% | $6,149.9 | 31.5% | $5,753.4 | 32.6% | 27.5% | 6.9% | | Asia | $10,576.6 | 43.5% | $8,722.3 | 44.6% | $7,125.6 | 40.4% | 21.3% | 22.4% | | **Total Avnet** | **$24,310.7**| | **$19,534.7**| | **$17,634.3** | | | | Organic Sales Year-over-Year % Change in Constant Currency | Category | Organic Sales Adj for TI Year-Year % Change in Constant Currency (1) | | :-------------- | :------------------------------------------------------------------- | | Avnet | 31.2% | | Avnet by region:|| | | Americas | 31.0% | | EMEA | 39.6% | | Asia | 25.5% | | Avnet by operating group:|| | | EC | 31.8% | | Farnell | 24.0% | - EC sales increased **24.8% to $22.50 billion** in fiscal 2022, with organic sales in constant currency up **29.6%**, driven by stronger market demand and pricing for electronic components, especially in transportation and industrial sectors[130](index=130&type=chunk) - Farnell sales increased **20.2% to $1.81 billion** in fiscal 2022, with sales in constant currency up **22.2%**, due to increased market demand and pricing for its products[131](index=131&type=chunk) - Sales from Maxim products represented **less than 3% of total sales** in fiscal 2022, following the termination of the distribution agreement[131](index=131&type=chunk) [Gross Profit and Gross Profit Margin](index=38&type=section&id=Gross%20Profit%20and%20Gross%20Profit%20Margin) Gross profit increased by 32.4% to $2.97 billion, with the gross profit margin improving by 73 basis points to 12.2% in fiscal 2022 Gross Profit and Margin (Millions USD) | Metric | July 2, 2022 | July 3, 2021 | Change (YoY) | | :--------------- | :----------- | :----------- | :----------- | | Gross Profit | $2,965.4 | $2,240.6 | +32.4% | | Gross Profit Margin | 12.2% | 11.5% | +73 bps | [Selling, General and Administrative Expenses](index=38&type=section&id=Selling%2C%20General%20and%20Administrative%20Expenses) SG&A expenses increased by 6.4% to $1.99 billion, but decreased as a percentage of sales to 8.2% and as a percentage of gross profit to 67.3% SG&A Expenses (Millions USD) | Metric | July 2, 2022 | July 3, 2021 | Change (YoY) | | :----------------------------------- | :----------- | :----------- | :----------- | | SG&A Expenses | $1,994.8 | $1,874.8 | +6.4% | | SG&A as % of Sales | 8.2% | 9.6% | -1.4 pp | | SG&A as % of Gross Profit | 67.3% | 83.7% | -16.4 pp | - The increase in SG&A expenses was primarily due to costs supporting sales growth and inflation, partially offset by favorable foreign currency translation[134](index=134&type=chunk) [Russian-Ukraine Conflict Related Expenses](index=39&type=section&id=Russian-Ukraine%20Conflict%20Related%20Expenses) Avnet incurred $26.3 million in fiscal 2022 for credit loss reserves on Russian receivables and product write-downs - Avnet incurred **$26.3 million** in expenses related to the Russian-Ukraine conflict in fiscal 2022, including **$17.2 million** for credit loss reserves on Russian customer receivables and **$9.1 million** for product write-downs and business wind-down costs[135](index=135&type=chunk)[250](index=250&type=chunk) [Restructuring, Integration and Other Expenses](index=39&type=section&id=Restructuring%2C%20Integration%20and%20Other%20Expenses) Restructuring, integration, and other expenses decreased to $5.3 million in fiscal 2022, primarily due to lower restructuring costs Restructuring, Integration and Other Expenses (Millions USD) | Fiscal Year | Amount | | :---------- | :----- | | 2022 | $5.3 | | 2021 | $84.4 | - Fiscal 2022 expenses were primarily integration costs, while fiscal 2021 included **$59.4 million** in restructuring costs and **$35.8 million** in integration costs, offset by a legal settlement gain[136](index=136&type=chunk) [Operating Income](index=39&type=section&id=Operating%20Income) Operating income for fiscal 2022 surged to $939.0 million (3.9% margin), a substantial increase from the prior fiscal year Operating Income (Millions USD) | Metric | July 2, 2022 | July 3, 2021 | June 27, 2020 | | :---------------------- | :----------- | :----------- | :------------ | | Operating Income (loss) | $939.0 | $281.4 | $(4.6) | | Adjusted Operating Income | $985.6 | $407.0 | $302.9 | Operating Income Margin | Metric | July 2, 2022 | July 3, 2021 | | :-------------------------- | :----------- | :----------- | | Operating Income Margin | 3.9% | 1.4% | | Adjusted Operating Income Margin | 4.1% | 2.1% | [Interest and Other Financing Expenses, Net and Other Expense, Net](index=39&type=section&id=Interest%20and%20Other%20Financing%20Expenses%2C%20Net%20and%20Other%20Expense%2C%20Net) Interest and other financing expenses increased to $100.4 million due to higher borrowings, while other expense, net, decreased Interest and Other Financing Expenses, Net (Millions USD) | Fiscal Year | Amount | | :---------- | :----- | | 2022 | $100.4 | | 2021 | $89.5 | - The increase in interest and other financing expenses in fiscal 2022 was primarily due to higher outstanding borrowings[138](index=138&type=chunk) Other Expense, Net (Millions USD) | Fiscal Year | Amount | | :---------- | :----- | | 2022 | $5.3 | | 2021 | $19.0 | - The year-over-year difference in other expense was mainly due to an equity investment impairment in fiscal 2021 and foreign currency exchange rate differences[138](index=138&type=chunk) [Income Tax Expense](index=41&type=section&id=Income%20Tax%20Expense) The effective tax rate for fiscal 2022 was 16.9%, favorably impacted by decreases in valuation allowances against deferred tax assets Effective Tax Rate | Fiscal Year | Effective Tax Rate | | :---------- | :----------------- | | 2022 | 16.9% | | 2021 | (11.7)% (benefit) | - The fiscal 2022 effective tax rate was favorably impacted by decreases in valuation allowances against deferred tax assets[140](index=140&type=chunk) - The fiscal 2021 effective tax rate benefited from a tax benefit from reduced fair value of certain businesses (allowing carryback under U.S. tax law) and income mix in lower tax jurisdictions, partially offset by increased unrecognized tax benefit reserves[140](index=140&type=chunk) [Net Income](index=41&type=section&id=Net%20Income) Net income in fiscal 2022 was $692.4 million, or $6.94 diluted EPS, a significant increase from the prior fiscal year Net Income and EPS (Millions USD, except EPS) | Metric | July 2, 2022 | July 3, 2021 | | :--------------- | :----------- | :----------- | | Net Income | $692.4 | $193.1 | | Diluted EPS | $6.94 | $1.93 | [Fiscal 2021 Comparison to Fiscal 2020](index=41&type=section&id=Fiscal%202021%20Comparison%20to%20Fiscal%202020) This section provides a comparative analysis of the company's financial performance for fiscal year 2021 against fiscal year 2020 [Liquidity and Capital Resources](index=41&type=section&id=Liquidity%20and%20Capital%20Resources) Cash used in operating activities was $219.3 million in fiscal 2022 due to working capital investments, while financing activities included new debt and share repurchases Cash Flows from Operating Activities (Millions USD) | Fiscal Year | Net Cash Flows (Used) Provided by Operating Activities | | :---------- | :----------------------------------------------------- | | 2022 | $(219.3) | | 2021 | $90.9 | - Cash used for working capital to support sales growth was **$1.09 billion** in fiscal 2022, including increases in accounts receivable (**$1.13 billion**) and inventories (**$1.22 billion**), offset by increases in accounts payable (**$1.13 billion**)[143](index=143&type=chunk) Cash Flows from Financing Activities (Millions USD) | Activity | Fiscal 2022 | Fiscal 2021 | | :---------------------------------------------- | :---------- | :---------- | | Issuance of notes, net | $299.97 | $297.66 | | Repayments of public notes | $(354.34) | $(305.08) | | Borrowings (repayments) under securitization, net | $274.90 | $22.90 | | Borrowings (repayments) under bank credit, net | $235.05 | $(2.79) | | Repurchases of common stock | $(184.38) | $0 | | Dividends paid | $(98.49) | $(84.31) | | **Net Cash Flows Provided (Used)** | **$156.06** | **$(314.01)**| Cash Flows from Investing Activities (Millions USD) | Activity | Fiscal 2022 | Fiscal 2021 | | :---------------------------------------------- | :---------- | :---------- | | Purchases of property, plant and equipment | $(48.9) | $(50.4) | | Acquisitions of assets and businesses | $0 | $(18.4) | | Proceeds from liquidation of life insurance | $90.4 | $0 | | **Net Cash Flows Provided (Used)** | **$51.3** | **$(61.2)** | - As of July 2, 2022, Avnet had **$153.7 million** in cash and cash equivalents, with **$60.4 million** held outside the United States[152](index=152&type=chunk) - The combined availability under the Credit Facility and Securitization Program was **$1.40 billion** as of July 2, 2022[154](index=154&type=chunk) - The Credit Facility was amended and extended to August 2027 post-fiscal year end[154](index=154&type=chunk) Contractual Obligations (Millions USD) as of July 2, 2022 | Obligation | Total | < 1 Year | 1-3 Years | 3-5 Years | > 5 Years | | :------------------------------- | :--------- | :------- | :-------- | :-------- | :-------- | | Long-term debt obligations | $1,622.4 | $174.4 | $298.0 | $550.0 | $600.0 | | Interest expense on long-term debt | $364.3 | $67.5 | $109.4 | $71.1 | $116.3 | | Operating lease obligations | $304.2 | $61.0 | $82.3 | $48.9 | $112.0 | [Critical Accounting Policies](index=46&type=section&id=Critical%20Accounting%20Policies) Critical accounting policies involve significant management judgment, particularly in the valuation of inventories and accounting for income taxes - Critical accounting policies include the valuation of inventories (lower of cost or net realizable value, considering obsolescence and price erosion protections) and accounting for income taxes (determining tax expenses, deferred tax assets/liabilities, and valuation allowances based on management judgment and future taxable income estimates)[161](index=161&type=chunk)[162](index=162&type=chunk)[163](index=163&type=chunk)[164](index=164&type=chunk)[165](index=165&type=chunk) [Recently Issued Accounting Pronouncements](index=48&type=section&id=Recently%20Issued%20Accounting%20Pronouncements) The company plans to adopt ASU 2020-04 and ASU 2021-01 (Reference Rate Reform) with no expected material impact on financial statements - The company plans to adopt ASU 2020-04 and ASU 2021-01 (Reference Rate Reform) when LIBOR is discontinued, expecting no material impact on consolidated financial statements[168](index=168&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=48&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Avnet manages market risks, particularly interest rate and foreign currency exchange rate fluctuations, through financial arrangements and economic hedges - Avnet uses financial arrangements and economic hedges to reduce earnings and cash flow volatility from changes in interest rates and foreign currency exchange rates[169](index=169&type=chunk)[175](index=175&type=chunk) Scheduled Maturities of Debt Outstanding (Millions USD) at July 2, 2022 | Liability | 2023 | 2024 | 2025 | 2026 | 2027 | Thereafter | Total | | :--------------- | :----- | :----- | :--- | :----- | :--- | :--------- | :--------- | | Fixed rate debt | $174.4 | $0.2 | $0 | $550.0 | $0 | $600.0 | $1,324.6 | | Floating rate debt | $0 | $297.8 | $0 | $0 | $0 | $0 | $297.8 | Carrying Value and Fair Value of Debt (Millions USD) | Liability | Carrying Value (July 2, 2022) | Fair Value (July 2, 2022) | Average Interest Rate (July 2, 2022) | | :--------------- | :---------------------------- | :------------------------ | :----------------------------------- | | Fixed rate debt | $1,324.6 | $1,265.8 | 4.1% | | Floating rate debt | $297.8 | $297.8 | 2.6% | - A hypothetical **10% change** in foreign currency exchange rates would result in an approximate **$50.0 million** increase or decrease to the fair value of forward foreign exchange contracts, generally offset by an opposite effect on the underlying exposure[175](index=175&type=chunk) [Financial Statements and Supplementary Data](index=51&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents Avnet's audited consolidated financial statements, including balance sheets, statements of operations, comprehensive income, shareholders' equity, and cash flows, along with detailed notes and the independent auditor's report - The consolidated financial statements include balance sheets, statements of operations, comprehensive income, shareholders' equity, and cash flows for the fiscal years ended July 2, 2022, July 3, 2021, and June 27, 2020[178](index=178&type=chunk)[179](index=179&type=chunk) - KPMG LLP provided an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting as of July 2, 2022[181](index=181&type=chunk) Consolidated Balance Sheets (Thousands USD) | Asset/Liability Category | July 2, 2022 | July 3, 2021 | | :------------------------------- | :------------ | :------------ | | **ASSETS** | | | | Cash and cash equivalents | $153,693 | $199,691 | | Receivables | $4,301,002 | $3,576,130 | | Inventories | $4,244,148 | $3,236,837 | | Total current assets | $8,876,626 | $7,163,421 | | Property, plant and equipment, net | $315,204 | $368,452 | | Goodwill | $758,833 | $838,105 | | Total assets | $10,388,532 | $8,925,422 | | **LIABILITIES & SHAREHOLDERS' EQUITY** | | | | Short-term debt | $174,422 | $23,078 | | Accounts payable | $3,431,683 | $2,401,357 | | Total current liabilities | $4,251,654 | $3,055,238 | | Long-term debt | $1,437,400 | $1,191,329 | | Total liabilities | $6,195,772 | $4,841,238 | | Total shareholders' equity | $4,192,760 | $4,084,184 | Consolidated Statements of Operations (Thousands USD, except per share) | Metric | July 2, 2022 | July 3, 2021 | June 27, 2020 | | :----------------------------------------- | :------------ | :------------ | :------------ | | Sales | $24,310,708 | $19,534,679 | $17,634,333 |\ | Gross profit | $2,965,391 | $2,240,630 | $2,063,456 |\ | Operating income (loss) | $939,011 | $281,408 | $(4,628) |\ | Income (loss) before taxes | $833,334 | $172,929 | $(129,585) |\ | Income tax expense (benefit) | $140,955 | $(20,185) | $(98,504) |\ | Net income (loss) | $692,379 | $193,114 | $(31,081) |\ | Diluted EPS | $6.94 | $1.93 | $(0.31) |\ | Cash dividends paid per common share | $1.00 | $0.85 | $0.84 | Consolidated Statements of Cash Flows (Thousands USD) | Cash Flow Category | July 2, 2022 | July 3, 2021 | June 27, 2020 | | :--------------------------------------- | :------------ | :------------ | :------------ | | Net cash flows (used) provided by operating activities | $(219,310) | $90,949 | $730,182 |\ | Net cash flows provided (used) for financing activities | $156,059 | $(314,013) | $(644,550) |\ | Net cash flows provided (used) for investing activities | $51,299 | $(61,196) | $(135,017) |\ | Cash and cash equivalents at end of period | $153,693 | $199,691 | $477,038 | [Report of Independent Registered Public Accounting Firm](index=52&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) KPMG LLP provided an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting [Consolidated Balance Sheets](index=55&type=section&id=Consolidated%20Balance%20Sheets) This section presents Avnet's consolidated balance sheets, detailing assets, liabilities, and shareholders' equity for the fiscal years ended July 2, 2022, and July 3, 2021 [Consolidated Statements of Operations](index=56&type=section&id=Consolidated%20Statements%20of%20Operations) This section presents Avnet's consolidated statements of operations, detailing revenues, expenses, and net income for the fiscal years ended July 2, 2022, July 3, 2021, and June 27, 2020 [Consolidated Statements of Comprehensive Income](index=57&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) This section presents Avnet's consolidated statements of comprehensive income, including net income and other comprehensive income components Consolidated Statements of Comprehensive Income (Thousands USD) | Metric | July 2, 2022 | July 3, 2021 | June 27, 2020 | | :--------------------------------------- | :----------- | :----------- | :------------ | | Net income (loss) | $692,379 | $193,114 | $(31,081) | | Foreign currency translation and other | $(324,139) | $152,678 | $(56,682) | | Pension adjustments, net | $(3,362) | $81,955 | $(27,659) | | **Total comprehensive income (loss)** | **$364,878** | **$427,747** | **$(115,422)**| [Consolidated Statements of Shareholders' Equity](index=58&type=section&id=Consolidated%20Statements%20of%20Shareholders%27%20Equity) This section presents Avnet's consolidated statements of shareholders' equity, detailing changes in common stock, retained earnings, and accumulated other comprehensive income Consolidated Statements of Shareholders' Equity (Thousands USD) | Item | June 29, 2019 | June 27, 2020 | July 3, 2021 | July 2, 2022 | | :-------------------------------------- | :------------ | :------------ | :------------ | :------------ | | Common Stock - Shares | 104,038 | 98,793 | 99,601 | 95,702 | | Common Stock - Amount | $104,038 | $98,793 | $99,601 | $95,702 | | Additional Paid-In Capital | $1,573,005 | $1,594,140 | $1,622,160 | $1,656,907 | | Retained Earnings | $2,767,469 | $2,421,845 | $2,516,170 | $2,921,399 | | Accumulated Other Comprehensive (Loss) Income | $(304,039) | $(388,380) | $(153,747) | $(481,248) | | **Total Shareholders' Equity** | **$4,140,473**| **$3,726,398**| **$4,084,184**| **$4,192,760**| [Consolidated Statements of Cash Flows](index=59&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section presents Avnet's consolidated statements of cash flows, detailing cash flows from operating, investing, and financing activities [Notes to Consolidated Financial Statements](index=60&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed notes to Avnet's consolidated financial statements, explaining significant accounting policies and specific financial items [1. Summary of significant accounting policies](index=60&type=section&id=1.%20Summary%20of%20significant%20accounting%20policies) This note outlines Avnet's key accounting principles, including fiscal year definition, adoption of new standards, inventory valuation, goodwill impairment, and revenue recognition - Avnet operates on a '52/53 week' fiscal year, ending on the Saturday closest to June 30th[203](index=203&type=chunk) - Fiscal 2022 and 2020 had **52 weeks**, while fiscal 2021 had **53 weeks**[203](index=203&type=chunk) - The company adopted ASC 326 (Credit Losses) on June 28, 2020, using a modified retrospective approach, increasing the allowance for credit losses by **$17.2 million** (**$14.5 million net of tax**)[205](index=205&type=chunk) - Inventories are stated at the lower of cost or net realizable value, with regular evaluations for demand, obsolescence, and market prices, considering contractual protections from suppliers[207](index=207&type=chunk) - Goodwill is tested for impairment at least annually in the fourth quarter, using income and market methodologies to determine fair value at the reporting unit level[216](index=216&type=chunk)[217](index=217&type=chunk) - Revenue is recognized when control of products transfers to the customer, typically upon shipment, and is measured net of customer discounts and rebates[223](index=223&type=chunk)[225](index=225&type=chunk) [2. Derivative financial instruments](index=70&type=section&id=2.%20Derivative%20financial%20instruments) This note details Avnet's use of economic hedges and derivative financial instruments, primarily forward foreign exchange contracts, to manage foreign currency risks - Avnet uses economic hedges, including natural hedging and derivative financial instruments (primarily forward foreign exchange contracts with maturities typically less than **60 days**), to reduce foreign currency exchange rate risks[239](index=239&type=chunk) Fair Values of Forward Foreign Exchange Contracts (Thousands USD) | Category | July 2, 2022 | July 3, 2021 | | :------------------------------- | :----------- | :----------- | | Prepaid and other current assets | $24,907 | $15,722 | | Accrued expenses and other | $29,663 | $23,994 | Net Derivative Financial Instrument (Loss) Gain (Thousands USD) | Fiscal Year | Amount | | :---------- | :----- | | 2022 | $(37,336) |\ | 2021 | $(21,605) |\ | 2020 | $12,739 | [3. Shareholders' equity](index=72&type=section&id=3.%20Shareholders%27%20equity) This note details changes in shareholders' equity, including accumulated other comprehensive loss, share repurchases, and dividends paid Accumulated Other Comprehensive Loss (Thousands USD) | Category | July 2, 2022 | July 3, 2021 | June 27, 2020 | | :------------------------------------------- | :----------- | :----------- | :------------ | | Accumulated translation adjustments and other | $(370,612) | $(46,473) | $(199,151) | | Accumulated pension liability adjustments, net of income taxes | $(110,636) | $(107,274) | $(189,229) | | **Total accumulated other comprehensive loss** | **$(481,248)**| **$(153,747)**| **$(388,380)**| - In May 2022, Avnet's Board approved a new share repurchase plan authorizing up to **$600 million**[247](index=247&type=chunk)[248](index=248&type=chunk) - During fiscal 2022, the company repurchased **4.7 million shares** for **$193.3 million**, with **$531.3 million** remaining under authorization as of July 2, 2022[247](index=247&type=chunk)[248](index=248&type=chunk) - Avnet paid **$1.00 per common share** in dividends, totaling **$98.5 million**, during fiscal 2022[248](index=248&type=chunk) [4. Receivables and Russian-Ukraine conflict related expenses](index=73&type=section&id=4.%20Receivables%20and%20Russian-Ukraine%20conflict%20related%20expenses) This note provides details on receivables, allowance for credit losses, and expenses incurred due to the Russian-Ukraine conflict Receivables and Allowance for Credit Losses (Thousands USD) | Category | July 2, 2022 | July 3, 2021 | | :------------------------ | :----------- | :----------- | | Receivables | $4,414,904 | $3,664,290 | | Allowance for Credit Losses | $(113,902) | $(88,160) | Allowance for Credit Losses Activity (Thousands USD) | Activity | July 2, 2022 | July 3, 2021 | | :---------------------------------------- | :----------- | :----------- | | Balance at beginning of period | $88,160 | $65,018 | | Credit Loss Provisions | $31,489 | $18,429 | | Russian-Ukraine conflict Credit Loss Provisions | $17,202 | $0 | | Receivables Write offs | $(15,233) | $(6,240) | | Balance at end of period | $113,902 | $88,160 | [5. Property, plant and equipment, net](index=74&type=section&id=5.%20Property%2C%20plant%20and%20equipment%2C%20net) This note details the composition of property, plant, and equipment, net, and associated depreciation expenses Property, Plant and Equipment, Net (Thousands USD) | Category | July 2, 2022 | July 3, 2021 | | :--------------------------------------- | :----------- | :----------- | | Buildings | $114,622 | $121,662 | | Machinery, fixtures and equipment | $249,053 | $260,342 | | Information technology hardware and software | $842,759 | $835,374 | | Leasehold improvements | $119,917 | $123,808 | | Depreciable property, plant and equipment, gross | $1,326,351 | $1,341,186 | | Accumulated depreciation | $(1,038,335) | $(999,885) | | Depreciable property, plant and equipment, net | $288,016 | $341,301 | | Land | $21,408 | $22,778 | | Construction in progress | $5,780 | $4,373 | | **Property, plant and equipment, net** | **$315,204** | **$368,452** | Depreciation Expense (Millions USD) | Fiscal Year | Amount | | :---------- | :----- | | 2022 | $87.4 | | 2021 | $90.9 | | 2020 | $101.1 | [6. Goodwill, intangible assets, and impairments](index=74&type=section&id=6.%20Goodwill%2C%20intangible%20assets%2C%20and%20impairments) This note provides information on goodwill balances by segment, acquired identifiable intangible assets, and related amortization expenses Goodwill Balances by Segment (Thousands USD) | Segment | July 3, 2021 | Foreign Currency Translation | July 2, 2022 | | :------------------ | :----------- | :--------------------------- | :----------- | | Electronic Components | $310,582 | $(19,056) | $291,526 | | Farnell | $527,523 | $(60,216) | $467,307 | | **Total** | **$838,105** | **$(79,272)** | **$758,833** | Acquired Identifiable Intangible Assets (Thousands USD) | Category | Acquired Amount | Accumulated Amortization (July 2, 2022) | Net Book Value (July 2, 2022) | | :----------------- | :-------------- | :-------------------------------------- | :---------------------------- | | Customer related | $292,163 | $(283,006) | $9,157 | | Trade name | $50,655 | $(47,961) | $2,694 | | Technology and other | $51,634 | $(50,834) | $800 | | **Total** | **$394,452** | **$(381,801)** | **$12,651** | Intangible Asset Amortization Expense (Millions USD) | Fiscal Year | Amount | | :---------- | :----- | | 2022 | $15.0 | | 2021 | $41.0 | | 2020 | $81.1 | [7. Debt](index=75&type=section&id=7.%20Debt) This note details Avnet's short-term and long-term debt, including credit facilities, securitization programs, public notes, and aggregate debt maturities Short-term Debt (Thousands USD) | Category | July 2, 2022 | July 3, 2021 | | :------------------------------------------- | :----------- | :----------- | | Other short-term debt and accounts receivable securitization program | $174,422 | $23,078 | | **Total Short-term debt** | **$174,422** | **$23,078** | - Avnet has a five-year **$1.25 billion Credit Facility**, amended and extended in August 2022 to expire in August 2027, with no borrowings outstanding as of July 2, 2022[263](index=263&type=chunk)[264](index=264&type=chunk) Long-term Debt (Thousands USD) | Category | July 2, 2022 | July 3, 2021 | | :------------------------------------------- | :----------- | :----------- | | Accounts receivable securitization program | $297,800 | $0 | | Public notes due: | | | | December 2022 | $0 | $350,000 | | April 2026 | $550,000 | $550,000 | | May 2031 | $300,000 | $300,000 | | June 2032 | $300,000 | $0 | | Other long-term debt | $148 | $1,185 | | Long-term debt before discount and issuance costs | $1,447,948 | $1,201,185 | | Discount and debt issuance costs – unamortized | $(10,548) | $(9,856) | | **Total Long-term debt** | **$1,437,400**| **$1,191,329**| - The Securitization Program allows for borrowings up to **$450.0 million**, with **$297.8 million** outstanding as of July 2, 2022[265](index=265&type=chunk)[266](index=266&type=chunk) Aggregate Debt Maturities (Thousands USD) | Fiscal Year | Amount | | :---------- | :----- | | 2023 | $174,422 |\ | 2024 | $297,948 |\ | 2025 | $0 |\ | 2026 | $550,000 |\ | 2027 | $0 |\ | Thereafter | $600,000 |\ | **Total Debt**| **$1,611,822**| [8. Accrued expenses and other](index=78&type=section&id=8.%20Accrued%20expenses%20and%20other) This note provides a breakdown of accrued expenses and other liabilities, including salaries, operating costs, interest, and restructuring costs Accrued Expenses and Other (Thousands USD) | Category | July 2, 2022 | July 3, 2021 | | :-------------------------------- | :----------- | :----------- | | Accrued salaries and benefits | $242,898 | $253,586 | | Accrued operating costs | $202,885 | $179,213 | | Accrued interest and banking costs | $38,394 | $32,985 | | Accrued restructuring costs | $9,185 | $39,962 | | Accrued income taxes | $24,831 | $0 | | Accrued property, plant and equipment | $20,275 | $7,131 | | Accrued other | $52,552 | $59,580 | | **Total accrued expenses and other** | **$591,020** | **$572,457** | [9. Income taxes](index=79&type=section&id=9.%20Income%20taxes) This note details income tax expense, effective tax rate reconciliation, net deferred tax assets, and unrecognized tax benefits Income Tax Expense (Benefit) (Thousands USD) | Category | July 2, 2022 | July 3, 2021 | June 27, 2020 | | :--------------- | :----------- | :----------- | :------------ | | Current: | | | | | Federal | $58,512 | $(62,445) | $(127,250) | | State and local | $8,871 | $(4,723) | $17,990 | | Foreign | $126,522 | $21,530 | $22,816 | | Total current taxes | $193,905 | $(45,638) | $(86,444) | | Deferred: | | | | | Federal | $(32,424) | $21,590 | $14,845 | | State and local | $(22,320) | $259 | $4,450 | | Foreign | $1,794 | $3,604 | $(31,355) | | Total deferred taxes | $(52,950) | $25,453 | $(12,060) | | **Income tax expense (benefit)** | **$140,955** | **$(20,185)** | **$(98,504)** | Effective Tax Rate Reconciliation | Factor | July 2, 2022 | July 3, 2021 | June 27, 2020 | | :----------------------------------------- | :----------- | :----------- | :------------ | | U.S. federal statutory rate | 21.0% | 21.0% | 21.0% | | State and local income taxes, net of federal benefit | 1.1% | (2.2)% | 4.6% | | Tax on foreign income, net of valuation allowances | (1.7)% | (10.7)% | 5.0% | | Establishment/release of valuation allowances, net of U.S. tax expense | (5.8)% | 2.1% | (28.5)% | | Change in unrecognized tax benefit reserves | (0.6)% | 14.3% | 20.1% | | Other, net | 1.3% | (5.8)% | (7.3)% |\ | **Effective tax rate** | **16.9%** | **(11.7)%** | **76.0%** | Net Deferred Tax Assets (Thousands USD) | Category | July 2, 2022 | July 3, 2021 | | :------------------------------------------- | :----------- | :----------- | | Federal, state and foreign net operating loss carry-forwards | $226,072 | $282,882 | | Inventories valuation | $29,798 | $25,336 | | Receivables valuation | $18,321 | $13,757 | | Various accrued liabilities and other | $47,717 | $26,566 | | Less — valuation allowances | $(207,889) | $(293,569) | | **Net deferred tax assets** | **$156,526** | **$109,445** | - The decrease in valuation allowances in fiscal 2022 was due to a **$65.2 million net release** primarily from changes in management's expectation of realizing deferred tax assets, and a **$20.5 million decrease** from foreign exchange rates[280](index=280&type=chunk) - As of July 2, 2022, Avnet had **$1.18 billion** in net operating and capital loss carry-forwards, with **$11.0 million** expiring in fiscal 2023-2024 and **$888.6 million** having no expiration date[281](index=281&type=chunk) Unrecognized Tax Benefits (Thousands USD) | Activity | July 2, 2022 | July 3, 2021 | | :---------------------------------------- | :----------- | :----------- | | Balance at beginning of year | $118,660 | $96,292 | | Additions for tax positions taken in prior periods | $3,569 | $36,452 | | Reductions related to settlements with taxing authorities | $(1,660) | $(711) | | Reductions related to the lapse of applicable statutes of limitations | $(3,883) | $(15,713) | | Adjustments related to foreign currency translation | $(4,595) | $3,390 | | **Balance at end of year** | **$109,285** | **$118,660** | [10. Pension and retirement plans](index=83&type=section&id=10.%20Pension%20and%20retirement%20plans) This note describes Avnet's defined benefit pension plan, its funded status, net periodic pension cost, and asset allocation strategy - Avnet sponsors a noncontributory defined benefit pension plan for U.S. employees, which is a cash balance plan where benefits are defined by stated account balances[287](index=287&type=chunk) Pension Plan Funded Status (Thousands USD) | Metric | July 2, 2022 | July 3, 2021 | | :--------------------------------------- | :----------- | :----------- | | Benefit obligations at end of year | $614,359 | $762,708 | | Fair value of plan assets at end of year | $638,894 | $772,279 | | Funded status of the plan | $24,535 | $9,571 | Net Periodic Pension Cost (Thousands USD) | Component | July 2, 2022 | July 3, 2021 | June 27, 2020 | | :-------------------------------------- | :----------- | :----------- | :------------ | | Service cost | $15,007 | $15,751 | $15,145 | | Interest cost | $15,787 | $15,904 | $22,552 | | Expected return on plan assets | $(49,135) | $(49,681) | $(50,671) | | Recognized net actuarial loss | $16,343 | $20,604 | $14,629 | | **Net periodic pension cost (benefit)** | **$(1,994)** | **$2,879** | **$3,792** | - The Plan's assets are primarily allocated to equity securities (**75% in 2022**) and fixed income debt securities (**24% in 2022**), with a target allocation of **65% for return-seeking investments**[298](index=298&type=chunk)[299](index=299&type=chunk) [11. Leases](index=88&type=section&id=11.%20Leases) This note provides information on total lease costs, future minimum operating lease payments, and weighted-average lease terms and discount rates Total Lease Cost (Thousands USD) | Fiscal Year | Operating Lease Cost | Variable Lease Cost | Total Lease Cost | | :---------- | :------------------- | :------------------ | :--------------- | | 2022 | $68,664 | $25,737 | $94,401 | | 2021 | $74,003 | $21,305 | $95,308 | Future Minimum Operating Lease Payments (Thousands USD) as of July 2, 2022 | Period | Amount | | :-------------- | :----- | | 2023 | $60,986 |\ | 2024 | $46,452 |\ | 2025 | $35,821 |\ | 2026 | $29,433 |\ | 2027 | $19,445 |\ | Thereafter | $112,046 |\ | **Total** | **$304,183**| - The weighted-average remaining lease term for operating leases was **8.8 years**, with a weighted-average discount rate of **3.8%** as of July 2, 2022[307](index=307&type=chunk) [12. Stock-based compensation](index=89&type=section&id=12.%20Stock-based%20compensation) This note details stock-based compensation expense, shares reserved, and activity for stock options, restricted stock units, and performance share programs Stock-Based Compensation Expense (Millions USD) | Fiscal Year | Amount | | :---------- | :----- | | 2022 | $36.7 | | 2021 | $29.3 | | 2020 | $26.8 | - As of July 2, 2022, Avnet had **8.2 million shares** reserved for stock-based payments, including **1.3 million** for unvested/unexercised stock options and **1.4 million** for unvested restricted stock units and performance share units[312](index=312&type=chunk) Stock Option Activity (Fiscal 2022) | Activity | Shares | Weighted Average Exercise Price | | :---------------------- | :---------- | :------------------------------ | | Outstanding at July 3, 2021 | 1,125,431 | $37.15 | | Granted | 361,308 | $39.62 | | Exercised | (142,498) | $39.78 | | Forfeited or expired | (39,105) | $42.81 | | Outstanding at July 2, 2022 | 1,305,136 | $37.38 | | Exercisable at July 2, 2022 | 516,939 | $39.28 | - As of July 2, 2022, total unrecognized compensation cost for stock options was **$1.4 million**, expected to be recognized over **2.5 years**[320](index=320&type=chunk) Restricted Stock Unit Activity (Fiscal 2022) | Activity | Shares | Average Grant-Date Fair Value | | :-------------------------------------- | :---------- | :---------------------------- | | Non-vested restricted stock units at July 3, 2021 | 1,338,035 | $32.80 | | Granted | 822,936 | $37.68 | | Vested | (761,407) | $34.91 | | Forfeited | (86,382) | $32.18 | | Non-vested restricted stock units at July 2, 2022 | 1,313,182 | $32.92 | - As of July 2, 2022, total unrecognized compensation expense for non-vested restricted stock units was **$20.1 million**, expected to be recognized over **2.1 years**[325](index=325&type=chunk) Performance Share Program Compensation Expense (Benefit) (Millions USD) | Fiscal Year | Amount | | :---------- | :----- | | 2022 | $2.0 | | 2021 | $(0.2) |\ | 2020 | $(3.8) | [13. Commitments and contingencies](index=92&type=section&id=13.%20Commitments%20and%20contingencies) This note outlines Avnet's involvement in legal proceedings and investigations, and estimated liabilities for compliance-related matters - Avnet is involved in various legal proceedings and investigations, with management not anticipating a material adverse effect on financial condition or liquidity, though results of operations could be materially impacted in a single reporting period[329](index=329&type=chunk)[330](index=330&type=chunk) - As of July 2, 2022, aggregate estimated liabilities for compliance-related matters were **$14.7 million**[330](index=330&type=chunk) [14. Earnings per share](index=92&type=section&id=14.%20Earnings%20per%20share) This note provides the calculation of basic and diluted earnings per share, including weighted average common shares Earnings Per Share Calculation (Thousands, except per share data) | Metric | July 2, 2022 | July 3, 2021 | June 27, 2020 | | :----------------------------------------- | :----------- | :----------- | :------------ | | Net income (loss) | $692,379 | $193,114 | $(31,081) | | Weighted average common shares for basic EPS | 98,662 | 99,258 | 100,474 | | Net effect of dilutive stock-based compensation awards | 1,157 | 910 | 0 | | Weighted average common shares for diluted EPS | 99,819 | 100,168 | 100,474 | | Basic earnings (loss) per share | $7.02 | $1.95 | $(0.31) | | Diluted earnings (loss) per share | $6.94 | $1.93 | $(0.31) | [15. Additional cash flow information](index=93&type=section&id=15.%20Additional%20cash%20flow%20information) This note provides supplemental cash flow information, including non-cash reconciling items, capital expenditures, and interest and income tax payments Other, Net Component of Non-Cash Reconciling Items (Thousands USD) | Component | July 2, 2022 | July 3, 2021 | June 27, 2020 | | :----------

Financial Data and Key Metrics Changes - For Q4 2022, the company reported revenues of $6.4 billion, up 21.9% year-over-year, and adjusted EPS of $2.07 compared to $1.12 in the prior year quarter [18][19] - For the fiscal year, total sales reached $24.3 billion, a 24.5% increase year-over-year, with a record GAAP EPS of $6.94 and adjusted EPS of $6.93 [19][20] - Operating margins for the fiscal year were 3.9%, with Q4 margins at 4.5% [6][19] Business Line Data and Key Metrics Changes - Electronic Components achieved revenues of $5.9 billion in Q4, up 23.9% year-over-year, while Farnell had record revenues of $442 million in Q4, with operating margins of 14.2% [22][24] - Farnell's full-year revenues increased by 20.2% year-over-year, with significant investments in inventory and e-commerce capabilities [15][23] Market Data and Key Metrics Changes - The company experienced strong demand in industrial, automotive, transportation, and aerospace sectors, with a notable 34% year-over-year growth in the Americas and EMEA on a constant currency basis [12][24] - Asia saw its fifth consecutive quarter of growth, reaching nearly $10 billion in sales for the fiscal year [12] Company Strategy and Development Direction - The company is focused on leveraging demand creation capabilities, supply chain services, and enhancing digital offerings to drive growth [16][30] - Investments in inventory and employee compensation are aimed at maintaining competitiveness in a challenging labor market [8][19] Management's Comments on Operating Environment and Future Outlook - Management acknowledged ongoing supply chain challenges due to lingering COVID-19 impacts and inflation, but expressed confidence in the company's ability to adapt and deliver value [11][30] - The outlook for Q1 2023 includes revenue guidance of $6.2 billion to $6.5 billion, with expectations of continued strength in Asia [29][30] Other Important Information - The company returned $25 million to shareholders in dividends, representing an 18% increase year-over-year, and repurchased $102 million of shares in Q4 [26] - The liquidity position remains strong, with cash and equivalents of $153.7 million and $1.4 billion in available lines of credit [25] Q&A Session Summary Question: Inventory composition and shortages - Management expressed confidence in inventory levels and quality, noting mixed lead times across different product categories [34][35] Question: Demand trends in semiconductor markets - Management indicated that while some areas are softening, demand remains strong in aerospace, defense, and industrial sectors [37][39] Question: Revenue guidance and inventory growth - The guidance for Q1 reflects expected sales demand and inventory timing, with a focus on supporting growth in Asia [41][42] Question: Pricing versus volume growth - The majority of growth was attributed to volume, with pricing inflation contributing approximately 7-8% to revenue growth [44][45] Question: Margin expectations and capital allocation - Management discussed the impact of pricing on margins and indicated plans for increased CapEx focused on digital tools and e-commerce [57][60] Question: Book-to-bill trends - Both segments maintained positive book-to-bill ratios, although there was a slight moderation compared to previous quarters [71][72]