Avnet(AVT) - 2024 Q4 - Annual Report

PART I Item 1. Business Avnet, Inc. is a global electronic component distributor and solutions provider, serving diverse customers across over 140 countries through its Electronic Components (EC) and Farnell operating groups - Avnet, Inc. is a leading global electronic component technology distributor and solutions provider, serving customers in over 140 countries for more than a century[15] - The company operates through two primary groups: Electronic Components (EC) for high/medium-volume customers and Farnell for lower-volume customers needing quick access to components, tools, and test products, primarily via e-commerce[16][18][24] 2024 Net Sales by Product Category | Product Category | % of EC Net Sales (2024) | % of Farnell Net Sales (2024) | | :--------------- | :----------------------- | :---------------------------- | | Semiconductors | ~85% | ~16% | | IP&E Components | ~14% | ~45% | | Computers | ~1% | ~5% (Single-board) | | Other Products | - | ~34% | Consolidated Sales by Major Product Category (Fiscal Years) | Product Category | June 29, 2024 (Millions) | July 1, 2023 (Millions) | July 2, 2022 (Millions) | | :--------------- | :----------------------- | :---------------------- | :---------------------- | | Semiconductors | $19,030.3 | $21,366.5 | $18,380.2 | | IP&E | $3,745.9 | $4,150.6 | $4,639.1 | | Computers | $382.8 | $520.8 | $663.2 | | Other | $598.1 | $499.0 | $628.2 | | Total Sales | $23,757.1 | $26,536.9 | $24,310.7 | - As of June 29, 2024, Avnet's global workforce totaled approximately 15,462 employees across 48 countries, with significant presence in EMEA (6,494), Asia (4,674), and the Americas (4,294)[35] - The company emphasizes competitive and fair compensation, comprehensive benefits via its THRIVE program, career development, health and safety, and Diversity, Equity, and Inclusion (DEI) initiatives, including a Global DEI Council and Employee Resource Groups[36][37][38][40][41] Organizational Structure Avnet operates with two primary, globally managed groups: Electronic Components (EC) and Farnell, supported by regional sales and marketing units - Avnet operates with two primary groups: Electronic Components (EC) and Farnell, both having operations in the Americas, EMEA, and Asia/Pacific regions[16] - Each operating group has its own management and distinct financial reporting, while regional divisions primarily serve as sales and marketing units[16] Electronic Components The EC group serves high and medium-volume customers, distributing semiconductors and other components with comprehensive lifecycle support for various markets - The EC group primarily serves high and medium-volume customers, distributing semiconductors, IP&E components, and other integrated/embedded components[18] - EC offers comprehensive support throughout the product lifecycle, including design, supply chain, programming, logistics, and post-sales services for markets like industrial, automotive, defense, and aerospace[18] EC Net Sales by Product (2024) | Product Category | % of EC Net Sales (2024) | | :--------------- | :----------------------- | | Semiconductor | ~85% | | IP&E Components | ~14% | | Computers | ~1% | Farnell Farnell supports lower-volume customers by providing quick access to electronic components, tools, and industrial automation products, primarily through e-commerce - Farnell supports lower-volume customers, providing quick access to electronic components, kits, tools, industrial automation, and test/measurement products, primarily through e-commerce[24] Farnell Net Sales by Product (2024) | Product Category | % of Farnell Net Sales (2024) | | :---------------------- | :---------------------------- | | Semiconductor | ~16% | | IP&E Components | ~45% | | Single-board computers | ~5% | | Other products/services | ~34% | Major Products Avnet's competitive strength lies in its broad supplier base, with semiconductors, IP&E, and computers being major product categories contributing to consolidated sales - The breadth and quality of Avnet's supplier base is a competitive strength, with products from one supplier accounting for approximately 10% of consolidated sales in fiscal years 2024 and 2023[25] Consolidated Sales by Major Product Category (Fiscal Years) | Product Category | June 29, 2024 (Millions) | July 1, 2023 (Millions) | July 2, 2022 (Millions) | | :--------------- | :----------------------- | :---------------------- | :---------------------- | | Semiconductors | $19,030.3 | $21,366.5 | $18,380.2 | | IP&E | $3,745.9 | $4,150.6 | $4,639.1 | | Computers | $382.8 | $520.8 | $663.2 | | Other | $598.1 | $499.0 | $628.2 | | Total Sales | $23,757.1 | $26,536.9 | $24,310.7 | Competition & Markets The electronic components industry is highly competitive, with key factors including inventory, product selection, pricing, and value-added services - The electronic components industry is highly competitive, with major competitors including Arrow Electronics, Future Electronics, World Peace Group, and WT Microelectronics for EC, and Mouser Electronics, Digi-Key Electronics, and RS Components for Farnell[29] - Key competitive factors include inventory availability, product selection, pricing, and value-added services like design support, supply chain management, and materials management[30][31] Seasonality Avnet's business is not materially impacted by seasonality, except for geographic sales shifts affecting 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[32] Human Capital Avnet's global workforce of approximately 15,462 employees is supported by competitive compensation, comprehensive benefits, career development, and strong DEI initiatives - As of June 29, 2024, Avnet's global workforce comprised approximately 15,462 employees across 48 countries, with 4,294 in the Americas, 6,494 in EMEA, and 4,674 in Asia[35] - The company focuses on competitive and fair compensation, comprehensive benefits through its THRIVE program, career development, health and safety, and Diversity, Equity, and Inclusion (DEI) initiatives[36][37][38][40] - DEI efforts are overseen by a Global DEI Council, and the Board of Directors was 30% women and 50% racially/ethnically diverse as of June 29, 2024. Executive incentive compensation includes DEI performance goals[40] - Employee engagement is measured through regular global surveys, achieving a 71.6% participation rate in fiscal 2024, an increase from fiscal 2023[42] Available Information Avnet's financial reports, proxy statements, and corporate governance documents are publicly available through the SEC and the company's investor relations website - Avnet files its annual, quarterly, and current reports, proxy statements, and other documents with the U.S. Securities and Exchange Commission (SEC), available on the SEC's website and Nasdaq[43] - Company filings and corporate governance information, including Corporate Governance Guidelines, Code of Conduct, and Board committee charters, are also available on Avnet's investor relations website[43][44] Item 1A. Risk Factors Avnet faces diverse risks including business and operational challenges, international uncertainties, financial constraints, and threats to information systems and data security - Forward-looking statements are subject to numerous assumptions, risks, and uncertainties, and actual results could differ materially from expectations[46] - Business and operations risks include changes in customer needs and consumption models (e.g., AI technology), semiconductor industry fluctuations, geopolitical uncertainty leading to shortages, and potential disruptions to key supplier and customer relationships[48][49][50][51] Semiconductor Sales as % of Consolidated Sales | Fiscal Year | % of Consolidated Sales | | :---------- | :---------------------- | | 2024 | ~80% | | 2023 | ~81% | | 2022 | ~76% | - International operations, accounting for approximately 77% of sales in fiscal 2024, are subject to risks like fund repatriation restrictions, foreign currency fluctuations, non-compliance with various international laws, trade restrictions, and economic/political instability[54][55][56][59] - Financial risks include inventory value declines due to technological change or oversupply, accounts receivable defaults, liquidity and capital resource constraints, and limitations imposed by financing covenants[66][70][71][74] - General risks encompass negative impacts from economic or geopolitical uncertainty (e.g., military conflicts, inflation), intense competition, and challenges in employee retention and hiring[89][91][94][96] Forward-Looking Statements and Risk Factors The report contains forward-looking statements subject to numerous assumptions, risks, and uncertainties, with no obligation for the company to update them unless legally required - The report contains forward-looking statements subject to numerous assumptions, risks, and uncertainties, and actual results may differ materially from those expressed or implied[46] - The company does not undertake to update forward-looking statements, except as required by law[46] Business and Operations Risks Risks include changes in customer demand, semiconductor industry cycles, supply chain disruptions, and reliance on key supplier relationships impacting financial results - Changes in customer product demands, consumption models, and technology (e.g., AI) could negatively impact billings and financial results[48] - The semiconductor industry's cyclical fluctuations, geopolitical uncertainties, and supply chain challenges can lead to product shortages, extended lead times, and order cancellations[49] Semiconductor Sales as % of Consolidated Sales | Fiscal Year | % of Consolidated Sales | | :---------- | :---------------------- | | 2024 | ~80% | | 2023 | ~81% | | 2022 | ~76% | - Disruptions to key supplier relationships, including termination of agreements or changes in contract terms (e.g., price protection, return rights), could adversely affect the company's business and profitability[50][51] Risks related to international operations International operations face risks from fund repatriation restrictions, currency fluctuations, regulatory non-compliance, trade restrictions, and geopolitical instability Sales from Operations Outside the United States | Fiscal Year | % of Total Sales | | :---------- | :--------------- | | 2024 | ~77% | | 2023 | ~76% | | 2022 | ~77% | - Risks include restrictions on repatriating funds, foreign currency and interest rate fluctuations, non-compliance with various foreign regulations (data privacy, anti-corruption, import/export), and economic/political instability[54][55][59] - Tariffs, trade restrictions, and sanctions (e.g., related to China, Hong Kong, Russia-Ukraine conflict) could lead to losses, increased costs, material shortages, and higher operational expenses[56][58] Internal information systems failures Failures or difficulties in upgrading internal information systems could adversely affect global operations, internal controls, financial reporting, and online sales attractiveness - The company relies on multiple information systems for global operations, and failures or difficulties in upgrading these systems could adversely affect business, internal controls, and financial reporting[60] - System interruptions and delays, especially for online sales, could reduce the attractiveness of products and services[61] Logistics disruptions Major interruptions at distribution centers or from third-party transportation providers could lead to delays, increased expenses, and negative impacts on business and reputation - Major interruptions at distribution centers or disruptions from third-party transportation providers could cause delays, increased expenses, and adverse impacts on business, operations, and reputation[62] Data security and privacy threats Increasingly sophisticated cybersecurity threats and non-compliance with data privacy laws pose significant liability, reputational harm, and adverse financial effects - Increasingly frequent and sophisticated cybersecurity threats (e.g., phishing, ransomware, AI-driven attacks) pose significant potential liability and reputational harm, despite implemented security controls[64][65] - Failure to comply with cybersecurity, data privacy, and data protection laws could lead to fines, litigation, and adverse effects on business and financial condition[65] Financial Risks Financial risks include inventory value declines, accounts receivable defaults, liquidity constraints, financing covenant restrictions, and changes in tax laws - Inventory value declines due to technological change, new products, decreased demand, or oversupply pose a risk, despite supplier protections which may not fully compensate for losses[66][69] - Accounts receivable defaults, especially during economic downturns, could adversely affect the company's business, operating results, financial condition, or liquidity[70] - Liquidity and capital resources constraints, including reliance on external financing, are subject to market conditions, interest rate fluctuations, and debt ratings, potentially leading to higher financing costs or reduced access to capital[71][72][73] - Financing covenants and restrictions in credit facilities and indentures limit the company's ability to grant liens, make restricted payments (e.g., dividends, share repurchases), incur additional debt, or engage in certain transactions[74][75] - Changes in tax laws and regulations, including the OECD's Base Erosion and Profit Shifting Project (Pillar Two), could adversely affect cash flow, share buyback costs, and the effective tax rate, with Pillar Two expected to impact taxes in fiscal year 2025[76][77][78] - Constraints on internal controls, due to human error or circumvention, could lead to material misstatements, harm the company's brand, and result in sanctions or investigations[79][81] - Strategic acquisitions and investments involve risks such as integration difficulties, unexpected costs, and diversion of management attention, potentially impacting profitability[82] Legal and Regulatory Risks Legal proceedings and non-compliance with environmental regulations could result in substantial costs, management distraction, and adverse effects on operations and reputation - Legal proceedings, including intellectual property, commercial, and product liability matters, could result in substantial costs, diversion of management efforts, and adverse effects on operations and reputation[83][86] - Non-compliance with environmental regulations, which may impose liability without fault, could lead to substantial costs, fines, civil/criminal sanctions, and reputational harm[87][88] General Risk Factors General risks include economic and geopolitical uncertainty, inflation, intense competition, and challenges in attracting and retaining qualified employees - Economic or geopolitical uncertainty and health crises can lead to decreased sales, margins, and earnings, increased logistics costs, demand uncertainty, and global supply chain disruptions[89] - Inflation could affect profitability and cash flows due to higher wages, operating expenses, financing costs, and supplier prices, which may not be passed on to customers[91][92] - Intense competition, including from new competitors and direct sales efforts by suppliers, could cause deterioration of gross profit margins and overall profitability[94][95] - Challenges in identifying, hiring, training, developing, and retaining qualified employees, exacerbated by immigration restrictions and workforce trends, are critical to the company's success[96] Item 1B. Unresolved Staff Comments This item is not applicable to the company - The company has no unresolved staff comments to report[97] Item 1C. Cybersecurity Avnet's comprehensive cybersecurity program, managed by the GC&C team, aligns with NIST and ISO27001 frameworks, includes third-party risk oversight, and is regularly updated to the Audit Committee - Avnet's Global Cybersecurity & Compliance (GC&C) team manages a comprehensive cybersecurity program, aligning with NIST Cyber Security Framework and ISO27001 standards[98][99][101] - The program includes policies for safe data processing, storage, and transmission, and oversees third-party service provider cybersecurity risks through evaluations and certifications[98][101] - The Audit Committee receives quarterly updates on the cybersecurity program, incidents, and threat landscape, with management providing updates to the senior executive team[101][102] - Regular security testing includes external penetration tests and maturity assessments, quarterly self-assessments, and ongoing internal audits. Employee training covers annual tabletop exercises, biennial computer-based training, and monthly phishing simulations[103] Item 2. Properties Avnet owns approximately 2.0 million square feet and leases 4.0 million square feet globally, with key facilities supporting warehousing, value-added operations, and corporate functions - Avnet owns approximately 2.0 million square feet and leases approximately 4.0 million square feet of space, with about 25% located in the United States[105] Key Facilities and Primary Use | Location | Footage (Approximate) | Ownership | Primary Use | | :------------------- | :-------------------- | :-------- | :----------------------------------------------- | | Bernburg, Germany | 680,000 | Owned | EC warehousing and value-added operations | | 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 | | Chandler, Arizona | 230,000 | Leased | EC warehousing, integration, 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 | | Taipei, Taiwan | 33,000 | Leased | EC warehousing | Item 3. Legal Proceedings Avnet regularly assesses legal and environmental matters, concluding no specific public disclosure is required, with appropriate accruals made for estimable costs - Avnet regularly assesses legal proceedings and environmental matters, concluding that no specific pending legal proceeding requires public disclosure[108] - Management believes that estimable costs for environmental and other legal proceedings have been appropriately accrued in the consolidated financial statements[108] - Resolution of current legal matters is not expected to materially affect financial position or liquidity, but could be material to results of operations in any single reporting period[109] Item 4. Mine Safety Disclosures This item is not applicable to the company - The company has no mine safety disclosures to report[110] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Avnet's common stock trades on Nasdaq, with future dividends determined by the Board, and the company repurchased $162.7 million of common stock in fiscal 2024 under its $600 million plan - Avnet's common stock is listed on the Nasdaq Global Select Market under the symbol AVT[111] - Future dividends are at the discretion of the Board of Directors, dependent on financial condition, results of operations, and capital requirements, and may be restricted by debt facilities[111] - As of August 2, 2024, there were 1,309 registered holders of Avnet's common stock[112] Issuer Purchases of Equity Securities (Q4 Fiscal 2024) | Period | Total Shares Purchased | Average Price Paid per Share | Value Remaining Under Plan | | :--------------------- | :--------------------- | :--------------------------- | :------------------------- | | March 31 – April 27 | — | — | $232,484,000 | | April 28 – May 25 | 560,000 | $53.17 | $202,707,000 | | May 26 – June 29 | 920,000 | $53.23 | $153,734,000 | - The company repurchased $162.7 million of common stock in fiscal 2024 under a $600 million share repurchase plan, with $153.7 million remaining as of June 29, 2024[116][149][165] Market Information Avnet's common stock is publicly traded on the Nasdaq Global Select Market under the ticker symbol AVT - Avnet's common stock is traded on the Nasdaq Global Select Market under the symbol AVT[111] Dividends Future dividends are at the Board of Directors' discretion, based on financial performance, capital needs, and potential restrictions from debt facilities - Future dividends are subject to the Board of Directors' discretion, based on financial condition, results, capital requirements, and debt facility restrictions[111] Record Holders As of August 2, 2024, there were 1,309 registered holders of Avnet's common stock - As of August 2, 2024, there were 1,309 registered holders of Avnet's common stock[112] Stock Performance Graphs and Cumulative Total Returns The report provides a 5-year cumulative total return comparison of Avnet's stock against the Nasdaq Composite Index and a customized peer group - The report includes a graph comparing Avnet's 5-year cumulative total return against the Nasdaq Composite Index and a customized peer group (Agilysys Inc., Arrow Electronics Inc., Insight Enterprises Inc., Scansource Inc., and TD Synnex Corporation)[112] Cumulative 5-Year Total Return (Indexed to $100 on 6/29/2019) | Date | Avnet, Inc. | Nasdaq Composite | Peer Group | | :--------- | :---------- | :--------------- | :--------- | | 6/29/2019 | $100 | $100 | $100 | | 6/27/2020 | $58.93 | $123.12 | $97.85 | | 7/3/2021 | $92.88 | $186.10 | $195.13 | | 7/2/2022 | $100.49 | $142.44 | $173.37 | | 7/1/2023 | $123.19 | $178.08 | $213.64 | | 6/29/2024 | $128.95 | $230.80 | $248.09 | Issuer Purchases of Equity Securities The Board approved a $600 million share repurchase plan, under which the company bought back $162.7 million of common stock in fiscal 2024 - The Board of Directors approved a share repurchase plan of up to $600 million of common stock[116] Issuer Purchases of Equity Securities (Q4 Fiscal 2024) | Period | Total Shares Purchased | Average Price Paid per Share | Value Remaining Under Plan | | :--------------------- | :--------------------- | :--------------------------- | :------------------------- | | March 31 – April 27 | — | — | $232,484,000 | | April 28 – May 25 | 560,000 | $53.17 | $202,707,000 | | May 26 – June 29 | 920,000 | $53.23 | $153,734,000 | - During fiscal 2024, the company repurchased $162.7 million of common stock under the plan[149] Item 6. [Reserved] This item is reserved and contains no information Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Avnet's fiscal 2024 saw a 10.5% sales decrease to $23.76 billion and a 35.3% net income drop to $498.7 million due to market downturns, offset by improved operating cash flow of $690.0 million from working capital reductions - The global electronic components market experienced a downturn in the second half of calendar year 2023, marked by decreased sales due to elevated customer inventory and lower underlying demand[125] Key Financial Highlights (Fiscal Years) | Metric | June 29, 2024 (Millions) | July 1, 2023 (Millions) | Variance ($) | Variance (%) | | :--------------------------- | :----------------------- | :---------------------- | :----------- | :----------- | | Sales | $23,757 | $26,537 | $(2,780) | (10.5)% | | Gross profit | $2,766 | $3,182 | $(416) | (13.1)% | | Operating income | $844 | $1,187 | $(342) | (28.9)% | | Adjusted operating income | $900 | $1,221 | $(321) | (26.3)% | | Net income | $499 | $771 | $(272) | (35.3)% | | Diluted earnings per share | $5.43 | $8.26 | $(2.83) | (34.3)% | | Gross profit margin | 11.6% | 12.0% | (35)bps | (0.4)% | | Operating income margin | 3.6% | 4.5% | (92)bps | (0.9)% | | Adjusted operating income margin | 3.8% | 4.6% | (81)bps | (0.8)% | - Sales for fiscal 2024 decreased by 10.5% to $23.76 billion, primarily due to reduced sales volume from the market downturn and an unfavorable product mix of lower-priced electronic components[129] - Net cash provided by operating activities significantly increased to $690.0 million in fiscal 2024 from a net cash use of $713.7 million in fiscal 2023, driven by improvements in working capital[148] - The company repaid $156.5 million in debt during fiscal 2024 and repurchased $162.7 million of common stock[149] Industry outlook The global electronic components market is experiencing a downturn since mid-2023 due to elevated customer inventory and decreased demand, impacting future sales and earnings - The global electronic components market is experiencing a downturn since the second half of calendar year 2023, characterized by decreased sales due to elevated customer inventory and lower demand[125] - The company expects sales in the first quarter of fiscal 2025 to be flat to 5% lower than the fourth quarter of fiscal 2024, negatively impacting operating income and diluted EPS[125] Sales Fiscal 2024 sales decreased by 10.5% to $23.76 billion, driven by reduced volumes across all regions and an unfavorable product mix in both EC and Farnell segments Sales Performance (Fiscal 2024 vs. 2023) | Metric | June 29, 2024 (Millions) | July 1, 2023 (Millions) | Variance ($) | Variance (%) | Constant Currency Change (%) | | :----- | :----------------------- | :---------------------- | :----------- | :----------- | :--------------------------- | | Total | $23,757.1 | $26,536.9 | $(2,780) | (10.5)% | (10.9)% | Sales by Operating Group (Fiscal 2024 vs. 2023) | Operating Group | June 29, 2024 (Millions) | % of Total | July 1, 2023 (Millions) | % of Total | Year-Year % Change | Constant Currency Change (%) | | :-------------- | :----------------------- | :--------- | :---------------------- | :--------- | :----------------- | :--------------------------- | | EC | $22,160.0 | 93.3% | $24,802.6 | 93.5% | (10.7)% | (11.0)% | | Farnell | $1,597.1 | 6.7% | $1,734.3 | 6.5% | (7.9)% | (9.3)% | Sales by Geographic Region (Fiscal 2024 vs. 2023) | Geographic Region | June 29, 2024 (Millions) | % of Total | July 1, 2023 (Millions) | % of Total | Year-Year % Change | Constant Currency Change (%) | | :---------------- | :----------------------- | :--------- | :---------------------- | :--------- | :----------------- | :--------------------------- | | Americas | $5,919.2 | 24.9% | $6,807.7 | 25.7% | (13.1)% | (13.1)% | | EMEA | $8,395.0 | 35.3% | $9,229.4 | 34.8% | (9.0)% | (11.4)% | | Asia | $9,442.9 | 39.8% | $10,499.8 | 39.5% | (10.1)% | (9.0)% | - EC sales decreased 10.7% (11.0% in constant currency) due to sales volume decreases across all regions and an unfavorable product mix. Farnell sales decreased 7.9% due to lower demand, partially offset by increased demand for single-board computers[130] Gross Profit Gross profit and margin decreased primarily due to lower sales volumes and a product mix shift towards lower-margin electronic components across both operating groups Gross Profit Performance (Fiscal 2024 vs. 2023) | Metric | June 29, 2024 (Millions) | July 1, 2023 (Millions) | Variance ($) | Variance (%) | | :---------------- | :----------------------- | :---------------------- | :----------- | :----------- | | Gross profit | $2,766.4 | $3,182.1 | $(415.7) | (13.1)% | | Gross profit margin | 11.6% | 12.0% | (35)bps | (0.4)% | - The decrease in gross profit and margin was primarily due to lower sales volumes and an increase in product mix towards lower-margin electronic components[131][132] - EC gross profit margin decreased due to a shift to lower-margin components, while Farnell's margin decreased due to lower sales of higher-margin components and the unwinding of component shortage pricing premiums[134] Selling, General and Administrative Expenses SG&A expenses decreased due to lower variable operating costs and restructuring actions, but increased as a percentage of sales and gross profit, indicating reduced operating leverage SG&A Expenses Performance (Fiscal 2024 vs. 2023) | Metric | June 29, 2024 (Millions) | July 1, 2023 (Millions) | Variance ($) | Variance (%) | | :----------------------------------- | :----------------------- | :---------------------- | :----------- | :----------- | | Selling, general and administrative expenses | $1,869.5 | $1,967.3 | $(97.8) | (5.0)% | | SG&A as % of sales | 7.9% | 7.4% | +0.5% | | | SG&A as % of gross profit | 67.6% | 61.8% | +5.8% | | - The decrease in SG&A expenses was primarily due to lower variable operating expenses associated with decreased sales volumes and restructuring actions, partially offset by inflation and foreign currency impacts[135] - SG&A as a percentage of sales and gross profit increased due to lower sales and gross profit without a proportional reduction in SG&A, indicating lower operating leverage[136] Restructuring, Integration and Other Expenses In fiscal 2024, the company incurred $52.55 million in restructuring and integration expenses, including severance for approximately 600 employees, targeting $110 million in annual cost reductions Restructuring, Integration and Other Expenses (Fiscal Years) | Expense Category | June 29, 2024 (Millions) | July 1, 2023 (Millions) | | :----------------------------------- | :----------------------- | :---------------------- | | Restructuring, integration, and other expenses | $52.55 | $28.04 | - In fiscal 2024, the company recorded $39.5 million in restructuring costs, primarily for severance related to a reduction of approximately 600 employees, aiming for $110 million in annual expense reductions across Farnell, EC, and corporate[137][343] - Integration expenses of $13.1 million related to warehouse consolidation, and other expenses of $5.5 million were for potential M&A activity. A $5.5 million benefit was recorded for environmental remediation reserves[137] Operating Income Operating income and margin decreased significantly due to lower gross profit, a disproportionate SG&A reduction, and higher restructuring and integration expenses Operating Income Performance (Fiscal 2024 vs. 2023) | Metric | June 29, 2024 (Millions) | July 1, 2023 (Millions) | Variance ($) | Variance (%) | | :--------------------------- | :----------------------- | :---------------------- | :----------- | :----------- | | Operating income | $844.4 | $1,186.8 | $(342.4) | (28.9)% | | Operating income margin | 3.6% | 4.5% | (92)bps | (0.9)% | | Adjusted operating income | $900.0 | $1,220.9 | $(320.8) | (26.3)% | | Adjusted operating income margin | 3.8% | 4.6% | (81)bps | (0.8)% | - The decrease in operating income and margin was primarily due to lower gross profit from reduced sales and an unfavorable gross margin, without a proportionate decrease in SG&A expenses, and higher restructuring/integration expenses[141] - EC operating income decreased 19.7% to $947.6 million, and Farnell operating income decreased 60.8% to $64.8 million, both due to lower sales and gross margin without proportional SG&A reductions[142] Interest and Other Financing Expenses, Net and Other (Expense) Income, Net Interest and other financing expenses increased due to higher borrowings and rates, while other income shifted to an expense primarily from foreign currency translation losses Interest and Other Financing Expenses, Net (Fiscal Years) | Metric | June 29, 2024 (Millions) | July 1, 2023 (Millions) | Variance ($) | Variance (%) | | :--------------------------------------- | :----------------------- | :---------------------- | :----------- | :----------- | | Interest and other financing expenses, net | $282.9 | $250.9 | $32.0 | 12.8% | - The increase in interest and other financing expenses was due to higher outstanding borrowings and increased average borrowing rates[143] Other (Expense) Income, Net (Fiscal Years) | Metric | June 29, 2024 (Millions) | July 1, 2023 (Millions) | Variance ($) | Variance (%) | | :------------------------- | :----------------------- | :---------------------- | :----------- | :----------- | | Other (expense) income, net | $(15.7) | $9.9 | $(25.6) | (258.8)% | - The shift to other expenses was primarily due to foreign currency translation losses[143] Gain on Legal Settlements and Other The company recorded significant gains from capacitor manufacturer settlements in fiscal 2024 and 2023, with a non-cash pension settlement expense in fiscal 2023 Gain on Legal Settlements and Other (Fiscal Years) | Metric | June 29, 2024 (Millions) | July 1, 2023 (Millions) | Variance ($) | Variance (%) | | :------------------------------- | :----------------------- | :---------------------- | :----------- | :----------- | | Gain on legal settlements and other | $86.5 | $37.0 | $49.5 | 133.5% | - The company recorded gains of $86.5 million in fiscal 2024 and $74.4 million in fiscal 2023 from settlements of claims against capacitor manufacturers[144][328] - In fiscal 2023, a non-cash settlement expense of $37.4 million was recognized related to a pension liability de-risking strategy[144] Income Tax Income tax expense decreased due to lower pre-tax income, and the effective tax rate slightly declined due to a favorable income mix in lower tax foreign jurisdictions Income Tax Expense and Effective Tax Rate (Fiscal Years) | Metric | June 29, 2024 (Millions) | July 1, 2023 (Millions) | Variance ($) | Variance (%) | | :------------------- | :----------------------- | :---------------------- | :----------- | :----------- | | Income tax expense | $133.6 | $212.0 | $(78.4) | (37.0)% | | Effective tax rate | 21.1% | 21.6% | (45)bps | (0.5)% | - The decrease in the effective tax rate was primarily due to the mix of income in lower tax foreign jurisdictions, partially offset by increases to unrecognized tax benefit reserves[145] Net Income Net income and diluted earnings per share significantly decreased in fiscal 2024, reflecting the overall market downturn and reduced profitability Net Income and Diluted EPS (Fiscal Years) | Metric | June 29, 2024 (Millions) | July 1, 2023 (Millions) | Variance ($) | Variance (%) | | :------------------------- | :----------------------- | :---------------------- | :----------- | :----------- | | Net income | $498.7 | $770.8 | $(272.1) | (35.3)% | | Diluted earnings per share | $5.43 | $8.26 | $(2.83) | (34.3)% | Liquidity and Capital Resources Operating cash flow significantly improved to $690.0 million in fiscal 2024, driven by working capital improvements, enabling debt repayments and share repurchases while maintaining strong compliance with financing covenants - Net cash provided by operating activities increased by $1.40 billion year-over-year to $690.0 million in fiscal 2024, primarily due to improvements in cash used for working capital[148] - The company made net debt repayments of $156.5 million and repurchased $162.7 million of common stock in fiscal 2024[149] - Avnet uses diverse financing arrangements, including public debt, bank loans, a revolving credit facility, and an accounts receivable securitization program, to fund operations and manage costs[151] - As of June 29, 2024, the company was in compliance with all covenants under its Credit Facility and Securitization Program, which include limitations on debt, share repurchases, dividends, and a required leverage ratio[155][156] Cash and Cash Equivalents (Fiscal Year End) | Metric | June 29, 2024 (Millions) | July 1, 2023 (Millions) | | :---------------------- | :----------------------- | :---------------------- | | Total Cash & Equivalents | $310.9 | $288.2 | | Held outside U.S. | $179.6 | $194.5 | - Combined availability under the Credit Facility and Securitization Program was $844.5 million as of June 29, 2024[161] Contractual Obligations as of June 29, 2024 (Millions) | Contractual Obligations | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | | :--------------------------- | :--------- | :--------------- | :-------- | :-------- | :---------------- | | Long-term debt obligations | $2,910.9 | $492.7 | $550.0 | $1,245.5 | $622.7 | | Interest expense on long-term debt | $493.9 | $134.9 | $211.0 | $78.2 | $69.8 | | Operating lease obligations | $266.8 | $60.0 | $81.0 | $41.8 | $84.0 | Critical Accounting Policies Avnet's critical accounting policies involve significant judgments and estimates, particularly concerning inventory valuation and the complex accounting for income taxes - Avnet's critical accounting policies involve significant judgments and estimates, particularly for the valuation of inventories and accounting for income taxes[169] - Inventories are recorded at the lower of cost or estimated net realizable value, with regular evaluations for demand, obsolescence, and market prices, considering supplier protections[170][171] - Accounting for income taxes requires judgment in determining tax expense, unrecognized tax benefit liabilities, deferred tax assets/liabilities, and valuation allowances, based on future taxable income and tax planning strategies[172][173][176] Recently Issued Accounting Pronouncements New accounting standards, ASU No. 2023-09 (Income Taxes) and ASU No. 2023-07 (Segment Reporting), will enhance disclosures and improve segment reporting in future fiscal years - ASU No. 2023-09 (Income Taxes) will be effective for the company in fiscal year 2026, requiring enhanced tax disclosures[177] - ASU No. 2023-07 (Segment Reporting) will be effective for the company in fiscal year 2025, improving segment disclosure requirements[178] Item 7A. Quantitative and Qualitative Disclosures About Market Risk Avnet manages interest rate and foreign currency exchange rate risks through financial arrangements, including economic hedges and short-term forward contracts, maintaining a mix of fixed and floating rate debt - Avnet uses financial arrangements, including economic hedges, to reduce earnings and cash flow volatility from changes in interest rates and foreign currency exchange rates[179][184] Scheduled Debt Maturities as of June 29, 2024 (Millions) | Liabilities | 2025 | 2026 | 2027 | 2028 | 2029 | Thereafter | Total | | :---------------- | :----- | :----- | :--- | :----- | :--- | :--------- | :--------- | | Fixed rate debt | $2.7 | $550.0 | $— | $500.0 | $— | $622.7 | $1,675.4 | | Floating rate debt| $490.0 | $— | $— | $745.5 | $— | $— | $1,235.5 | Debt Carrying and Fair Values with Average Interest Rates (Millions) | Liabilities | Carrying Value (June 29, 2024) | Fair Value (June 29, 2024) | Average Interest Rate (June 29, 2024) | | :---------------- | :----------------------------- | :------------------------- | :------------------------------------ | | Fixed rate debt | $1,675.4 | $1,621.1 | 5.0% | | Floating rate debt| $1,235.5 | $1,235.5 | 5.5% | - Foreign currency exposure is managed through natural hedging and derivative financial instruments, primarily forward foreign currency exchange contracts with maturities typically less than 60 days[184] Item 8. Financial Statements and Supplementary Data This section presents Avnet's consolidated financial statements for fiscal years 2024, 2023, and 2022, with an unqualified opinion from KPMG LLP on both financial statements and internal control effectiveness - The section includes Avnet's Consolidated Financial Statements: Balance Sheets, Statements of Operations, Comprehensive Income, Shareholders' Equity, and Cash Flows for fiscal years 2024, 2023, and 2022[187] - KPMG LLP, the independent registered public accounting firm, issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting as of June 29, 2024[188][189] - The critical audit matter identified was the evaluation of accounting for income taxes, requiring complex auditor judgment and specialized tax professionals[197][198] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There have been no changes in or disagreements with accountants on accounting and financial disclosure - The company reports no changes in or disagreements with accountants on accounting and financial disclosure[347] Item 9A. Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and internal control over financial reporting were effective as of June 29, 2024, with no material changes in Q4 fiscal 2024 - The CEO and CFO concluded that Avnet's disclosure controls and procedures were effective as of June 29, 2024[348] - Management assessed and concluded that the company maintained effective internal control over financial reporting as of June 29, 2024, based on the 2013 COSO framework[349] - KPMG LLP audited and confirmed the effectiveness of the company's internal controls over financial reporting[350] - No material changes to internal control over financial reporting occurred during the fourth quarter of fiscal 2024[351] Item 9B. Other Information No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the three months ended June 29, 2024 - No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the three months ended June 29, 2024[352] Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - The company has no disclosures regarding foreign jurisdictions that prevent inspections[352] PART III Item 10. Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance, including the updated Insider Trading Policy, is incorporated by reference from the November 22, 2024, proxy statement - Information for this item is incorporated by reference from the company's definitive proxy statement for the Annual Meeting of Stockholders on November 22, 2024[353] - The company has an Insider Trading Policy, updated as of June 1, 2024, designed to ensure compliance with insider trading laws and exchange listing standards[353] Item 11. Executive Compensation Information regarding executive compensation is incorporated by reference from the company's definitive proxy statement for the Annual Meeting of Stockholders on November 22, 2024 - Information for this item is incorporated by reference from the company's definitive proxy statement for the Annual Meeting of Stockholders on November 22, 2024[354] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership of beneficial owners and management is incorporated by reference from the company's definitive proxy statement for the Annual Meeting of Stockholders on November 22, 2024 - Information for this item is incorporated by reference from the company's definitive proxy statement for the Annual Meeting of Stockholders on November 22, 2024[354] Item 13. Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the company's definitive proxy statement for the Annual Meeting of Shareholders on November 22, 2024 - Information for this item is incorporated by reference from the company's definitive proxy statement for the Annual Meeting of Shareholders on November 22, 2024[355] Item 14. Principal Accounting Fees and Services Information regarding principal accounting fees and services is incorporated by reference from the company's definitive proxy statement for the Annual Meeting of Stockholders on November 22, 2024 - Information for this item is incorporated by reference from the company's definitive proxy statement for the Annual Meeting of Stockholders on November 22, 2024[356] PART IV Item 15. Exhibits and Financial Statement Schedules This section lists financial statements, supplementary data, and a comprehensive index of exhibits including organizational documents, debt instruments, and compensation plans - The financial statements and supplementary data are listed under Item 8 of this Report[357] - Exhibits include the Restated Certificate of Incorporation, By-laws, Description of Registrant's Securities, various Indentures for Notes, and forms of Officer's Certificates for debt terms[357][358][359][360] - Executive compensation plans and arrangements, such as letter agreements, change of control agreements, severance plans, and stock compensation plans, are also listed as exhibits[361][362][363][365] - Bank agreements, including the Securitization Program and the Credit Facility, along with their amendments, are detailed[366][367][368] - Other exhibits include the Insider Trading Policy, List of Subsidiaries, Consent of KPMG LLP, Power of Attorney, and various certifications (e.g., Sarbanes-Oxley Act)[369][370] Item 16. Form 10-K Summary This item is not applicable to the company - The company states that Item 16, Form 10-K Summary, is not applicable[370]