Avnet(AVT) - 2020 Q4 - Annual Report

PART I Item 1. Business Avnet is a global technology solutions company providing design, product, marketing, and supply chain expertise, serving 2.1 million customers with $17.63 billion in fiscal 2020 sales Company Overview Avnet, founded in 1921, is a global technology solutions provider offering design, product, marketing, and supply chain expertise - Avnet, Inc. is a global technology solutions company, founded in 1921, providing design, product, marketing, and supply chain expertise to customers worldwide[3] - The company serves a wide range of customers, from startups to enterprise-level OEMs, EMS providers, and ODMs, supporting every stage of the electronic product lifecycle[5] Organizational Structure Avnet operates through Electronic Components (EC) and Farnell groups, each with distinct management and regional business units - Avnet operates with two primary groups: Electronic Components (EC) and Farnell, both having operations in the Americas, EMEA, and Asia/Pacific regions[6] - Each operating group has its own management team and distinct financial reporting, with business units focused on sales and marketing along specific geographies or product lines[6] Electronic Components (EC) The EC group supports high-volume customers by distributing electronic components, including semiconductors and IP&E components - The EC operating group primarily supports high-volume customers by marketing, selling, and distributing electronic components, including semiconductors and IP&E components[8] - EC serves diverse markets such as automotive, medical, defense, and aerospace, offering comprehensive customer support throughout the product lifecycle[9] Design Chain Solutions EC provides technical design solutions, tools, and engineering support to optimize component selection and accelerate time to market - EC provides design chain support with technical design solutions, access to design tools, engineering support, evaluation kits, and reference designs to help customers optimize component selection and accelerate time to market[10] Supply Chain Solutions EC offers global supply chain and logistical services, leveraging warehousing and IT to optimize operations and minimize risk - EC offers supply chain and logistical services to OEMs, EMS providers, and electronic component manufacturers, leveraging global warehousing, IT, and asset management to optimize supply chains and minimize risk[11] Avnet Integrated EC delivers integrated solutions, including design, integration, and assembly of embedded products for industrial and OEM markets - EC provides integrated solutions, including technical design, integration, and assembly of embedded products, systems, and intelligent display solutions, primarily for industrial applications and OEMs in medical, telecom, industrial, and digital editing markets[12] Farnell The Farnell group serves lower-volume customers with quick access to electronic components, tools, and an online engineering community - Farnell operating group supports lower-volume customers needing quick access to electronic components, kits, tools, and industrial automation products for development, prototyping, and testing[13] - Farnell also hosts element14, an online community for engineers to collaborate, access new technologies, and receive expert support[13] Major Products Avnet distributes products from 1,400+ suppliers, with semiconductors being the largest category, and TI as a key supplier - Avnet distributes products from over 1,400 technology suppliers, with no single supplier exceeding 10% of consolidated sales in fiscal 2020. Texas Instruments (TI) products accounted for approximately 10% and 11% of sales in fiscal 2019 and 2018, respectively[3][14] Sales by Major Product Categories (Fiscal Years 2018-2020) | Product Category | June 27, 2020 (Millions) | June 29, 2019 (Millions) | June 30, 2018 (Millions) | |:-----------------|:-------------------------|:-------------------------|:-------------------------| | Semiconductors | $13,440.3 | $14,973.3 | $14,890.9 | | IP&E | 3,146.0 | 3,516.0 | 3,227.0 | | Computers | 572.0 | 533.1 | 461.9 | | Other | 476.0 | 496.2 | 457.1 | | Total Sales | $17,634.3 | $19,518.6 | $19,036.9 | Competition & Markets The electronic components industry is highly competitive, driven by inventory, pricing, and value-added services - The electronic components industry is highly competitive, with major competitors including Arrow Electronics, Inc., Future Electronics, World Peace Group, Mouser Electronics, and Digi-Key Electronics[15] - Key competitive factors include maintaining sufficient inventory for rapid delivery, competitive pricing, and offering value-added services like supply chain management and testing[16] Seasonality Avnet's business is not materially seasonal, except for regional sales shifts between Asia and Americas/EMEA - Avnet's business is not materially impacted by seasonality, except for shifts in regional sales trends from Asia in the first half of a fiscal year to the Americas and EMEA regions in the second half[18] Number of Employees This section provides a table detailing Avnet's employee count for fiscal years 2018-2020 Number of Employees (Fiscal Years 2018-2020) | Date | Number of Employees | |:-------------|:--------------------| | June 27, 2020| 14,600 | | June 29, 2019| 15,500 | | June 30, 2018| 15,400 | Available Information Company reports and information are publicly available through the SEC website and Avnet's investor relations site - The Company 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 (http://www.sec.gov) and Nasdaq[20] Avnet Website Avnet's website and investor relations site offer comprehensive information on management, products, services, and governance - Extensive information about Avnet, including management, products, services, and corporate governance, is available on its website (http://www.avnet.com) and investor relations site (ir.avnet.com)[22][23][24] - Avnet is a global technology solutions company founded in 1921, serving over 2.1 million customers in more than 140 countries with an extensive ecosystem for product lifecycle support[3] - The company has enhanced its distribution, design, supply chain, and logistics capabilities through strategic acquisitions like Premier Farnell, Hackster.io, Softweb Solutions, Witekio, and Phoenics Electronics[4] Sales by Major Product Categories (Fiscal Years 2018-2020) | Product Category | June 27, 2020 (Millions) | June 29, 2019 (Millions) | June 30, 2018 (Millions) | |:-----------------|:-------------------------|:-------------------------|:-------------------------| | Semiconductors | $13,440.3 | $14,973.3 | $14,890.9 | | IP&E | 3,146.0 | 3,516.0 | 3,227.0 | | Computers | 572.0 | 533.1 | 461.9 | | Other | 476.0 | 496.2 | 457.1 | | Total Sales | $17,634.3 | $19,518.6 | $19,036.9 | Item 1A. Risk Factors Avnet faces significant risks from the COVID-19 pandemic, economic weakness, geopolitical uncertainty, intense competition, and the TI distribution agreement termination Forward-Looking Statements and Risk Factors The report contains forward-looking statements subject to assumptions, risks, and uncertainties, where actual results may differ materially - The report contains forward-looking statements subject to numerous assumptions, risks, and uncertainties, and actual results may differ materially from those expressed or implied[26] COVID-19 Pandemic Impact The COVID-19 pandemic has negatively impacted the global economy, supply chains, and financial markets, affecting Avnet's operations - The COVID-19 pandemic has negatively impacted the global economy, disrupted supply chains, constrained workforce participation, and created financial market volatility, affecting Avnet's operations and financial results[28][29] - Avnet has experienced increased logistics costs, softer product demand, price constraints, longer lead times, and shipping delays, implementing business continuity plans and cash conservation measures[29][30] Economic Weakness and Geopolitical Uncertainty Worldwide economic and geopolitical conditions, including COVID-19 and Brexit, influence Avnet's financial results and operations - Worldwide economic and geopolitical conditions, including the COVID-19 pandemic and Brexit, significantly influence Avnet's financial results, operations, and prospects, potentially leading to decreased sales, margins, and asset impairments[31][32][34] Competitive Pressure The highly competitive electronic components market, with rapid technological advances, could negatively impact Avnet's profitability - The electronic components market is highly competitive, with rapid technological advances and new entrants, which could negatively impact Avnet's gross profit margins and overall profitability[35][36] Changes in Customer Needs and Consumption Models Evolving customer needs and consumption models in semiconductor and embedded solutions could adversely affect operating results - Changes in customer needs and consumption models, particularly in the semiconductor and embedded solutions industries, could lead to declines in billings and adversely affect operating results[37][38] Failure to Maintain or Develop New Supplier Relationships The termination of the Texas Instruments distribution agreement poses a risk to future sales and gross profit - The termination of the distribution agreement with Texas Instruments (TI) by December 2020, which represented approximately 9% of total sales in fiscal 2020, poses a risk of lower future sales and gross profit[40] - Consolidation among suppliers and modifications to contract terms (e.g., price protection, rebates) could negatively impact Avnet's profitability and customer base[40] Risks of International Operations International operations, comprising 75% of sales, expose Avnet to foreign currency fluctuations, trade restrictions, and diverse regulations - Approximately 75% of Avnet's sales in fiscal 2020 came from outside the U.S., exposing the company to risks such as foreign currency fluctuations, restrictions on fund repatriation, and compliance with diverse international regulations (e.g., data privacy, anti-corruption, import/export laws)[41][42][43][44] - New or higher tariffs imposed by the U.S. and Chinese governments, along with trade restrictions, could increase costs and impact sales, potentially affecting operating profits[46][47] Information Systems Failure Failures in internal information systems or integration difficulties could disrupt operations and affect financial reporting accuracy - Failures in internal information systems or difficulties in implementing/integrating upgrades could disrupt business operations, affect financial reporting accuracy, and prevent the realization of expected efficiencies[48][49] Logistics Capability Disruptions Major disruptions at global distribution centers or third-party transportation could cause shipment delays and impact financial performance - Major interruptions at global distribution centers or disruptions from third-party transportation providers (due to IT issues, natural disasters, pandemics) could cause significant shipment delays and adversely impact business operations and financial performance[50][51] Cyber-attacks and Data Security Incidents Cyber-attacks, security breaches, or data incidents could lead to information misappropriation, system disruptions, and reputational harm - Cyber-attacks, security breaches, or data security incidents could lead to misappropriation of sensitive information, system disruptions, significant liability, reputational harm, and increased costs for protection and remediation[52][53][54][56] Declines in Inventory Value or Order Cancellations Rapid technological change and market fluctuations can lead to inventory value declines or obsolescence, impacting profitability - Rapid technological change and market fluctuations in the electronic components industry can lead to declines in inventory value or obsolescence, which may not be fully compensated by supplier protections[57][58] Defaults by Customers or Suppliers Substantial customer defaults on accounts receivable or loss of significant customers could negatively impact Avnet's financial condition - Substantial defaults by customers on accounts receivable or the loss of significant customers could negatively impact Avnet's business, results of operations, financial condition, and liquidity[59][60] Inadequate Liquidity or Capital Resources Avnet's ability to meet cash needs depends on operations and financial markets, affecting financing costs and capital access - Avnet's ability to meet cash needs depends on generating cash from operations and accessing financial markets, which can be affected by economic conditions and debt ratings, potentially increasing financing costs or limiting access to capital[61][62][63] Covenants and Restrictions on Financing Agreements Financing agreements contain covenants limiting management's discretion, potentially affecting liens, payments, and additional debt - Financing agreements contain covenants and restrictions that limit management's discretion in operating the business, potentially affecting the ability to grant liens, make restricted payments (like dividends or share repurchases), incur additional debt, or engage in certain transactions[66][67][69] Changes in Tax Rules and Regulations Changes in tax laws and interpretations, including international alignments, could adversely affect Avnet's effective tax rates and financial results - Changes in tax laws (e.g., Tax Cuts and Jobs Act, CARES Act) and their interpretations, as well as international tax policy alignments (BEPS Project), could adversely affect Avnet's effective tax rates, deferred taxes, and financial results[70][71][72][73][74] Failure to Maintain Effective Internal Controls Ineffective internal controls could lead to inaccurate financial reporting, fraud, reputational harm, and regulatory sanctions - Failure to maintain effective internal controls could lead to inaccurate or untimely financial reporting, inability to prevent or detect fraud, harm to brand and operating results, and potential sanctions from regulatory authorities[77][78] Acquisition Strategy Risks Strategic acquisitions involve risks like integration difficulties, unexpected costs, and potential impairment charges, impacting profitability - Strategic acquisitions involve risks such as integration difficulties, unexpected costs or liabilities, impact on existing relationships, potential impairment charges, and diversion of management's attention, which may negatively impact profitability[79][80] Legal Proceedings Involvement in legal proceedings, including IP rights and government investigations, could result in substantial costs and reputational harm - Involvement in legal proceedings, including intellectual property rights, product liability, and government investigations, could result in substantial costs, diversion of management efforts, and adverse effects on operations and reputation[81][82][84] Attracting and Retaining Key Employees Failure to attract, retain, train, motivate, and develop qualified employees could adversely impact Avnet's results and strategic initiatives - Failure to attract, retain, train, motivate, and develop qualified employees, especially in a competitive industry, could adversely impact Avnet's results and strategic initiatives[85][86] Environmental Regulations Compliance Non-compliance with environmental regulations could result in substantial costs, fines, and civil or criminal sanctions - Non-compliance with federal, state, local, and foreign environmental regulations regarding product disposal, hazardous materials, and recycling could result in substantial costs, fines, and civil or criminal sanctions[87] - The COVID-19 pandemic has negatively impacted the global economy, disrupted supply chains, increased logistics costs, softened product demand, and created significant financial market volatility, with continued negative impacts expected into fiscal 2021[28][29][30] - Economic weakness and geopolitical uncertainty, including Brexit, could lead to decreased sales, margins, asset impairments, and increased foreign currency volatility[31][32][34] - The termination of the distribution agreement with Texas Instruments (TI), which accounted for approximately 9% of total sales in fiscal 2020, will result in lower sales and gross profit if not offset by strategic initiatives[40] - International operations, which generated approximately 75% of sales in fiscal 2020, expose the company to risks such as foreign currency fluctuations, repatriation restrictions, compliance with diverse regulations, and geopolitical instability[41][42][43] - Cyber-attacks, security breaches, and failures in internal information systems or logistics capabilities could lead to loss of sales, increased costs, significant liability, and reputational harm[48][51][52] Item 1B. Unresolved Staff Comments There are no unresolved staff comments to report Item 2. Properties Avnet owns 2.1 million square feet and leases 4.8 million square feet globally, with 25% in the United States, including key warehousing and corporate facilities - Avnet owns approximately 2.1 million square feet and leases 4.8 million square feet of space, with 25% of its total space located in the United States[89] Key Facilities Summary | Location | Square Footage | Ownership Type | 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 | Future Farnell warehousing and value-added ops | | Leeds, United Kingdom | 330,000 | Owned | Current Farnell warehousing and value-added ops| | 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 | | Chandler, Arizona | 150,000 | Leased | EC warehousing, integration and value-added ops| Item 3. Legal Proceedings Avnet is subject to various legal matters, including compliance with governmental regulations, which management believes will not materially affect financial position or liquidity - Avnet is subject to various legal proceedings and investigations related to governmental laws and regulations, including import/export and environmental matters[91][92] - Management believes the resolution of these matters will not materially affect financial position or liquidity, but could be material to results of operations in a single reporting period[92] Item 4. Mine Safety Disclosures This item is not applicable to Avnet, Inc PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Avnet's common stock is listed on Nasdaq under AVT, with future dividends at Board discretion, and a $2.95 billion share repurchase program temporarily suspended - Avnet's common stock is listed on the Nasdaq Global Select Market under the symbol AVT[94] - The declaration and payment of 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[94][96] - As of July 25, 2020, there were 1,623 registered holders of Avnet's common stock[97] 5-Year Cumulative Total Return (June 2015 - June 2020) | Date | Avnet, Inc. | Nasdaq Composite | Peer Group | |:-------------|:------------|:-----------------|:-----------| | 6/27/2015 | $100 | $100 | $100 | | 7/2/2016 | $97.23 | $98.32 | $108.73 | | 7/1/2017 | $95.44 | $126.14 | $138.90 | | 6/30/2018 | $107.23 | $155.91 | $131.87 | | 6/29/2019 | $115.26 | $168.04 | $132.42 | | 6/27/2020 | $67.93 | $213.32 | $129.58 | - In August 2019, the Board increased the share repurchase program authorization to $2.95 billion. During fiscal 2020, the company repurchased $236.4 million of common stock, but repurchases were temporarily suspended due to economic uncertainty from COVID-19[101][272][273] Item 6. Selected Financial Data Avnet's selected financial data for fiscal 2020 shows a decline in sales to $17.63 billion and a net loss of $31.1 million, with negative diluted EPS Consolidated Statements of Operations (Selected Data, Fiscal Years 2016-2020) | Metric | June 27, 2020 (Millions) | June 29, 2019 (Millions) | June 30, 2018 (Millions) | July 1, 2017 (Millions) | July 2, 2016 (Millions) | |:-------------------------------------|:-------------------------|:-------------------------|:-------------------------|:------------------------|:------------------------| | Sales | $17,634.3 | $19,518.6 | $19,036.9 | $17,440.0 | $16,740.6 | | Gross profit | 2,063.5 | 2,486.1 | 2,527.2 | 2,369.4 | 2,077.9 | | Operating (loss) income | (4.6) | 365.9 | 209.2 | 443.7 | 565.1 | | Income tax (benefit) expense | (98.6) | 62.2 | 288.0 | 47.1 | 87.1 | | Income (loss) from continuing ops | (29.5) | 180.1 | (142.9) | 263.4 | 390.9 | | Net income (loss) | (31.1) | 176.3 | (156.4) | 525.3 | 506.5 | | Diluted EPS (continuing ops) | (0.29) | 1.63 | (1.19) | 2.05 | 2.93 | | Diluted EPS (net) | (0.31) | 1.59 | (1.30) | 4.08 | 3.80 | | Cash dividends per share | 0.84 | 0.80 | 0.74 | 0.70 | 0.68 | Consolidated Balance Sheets (Selected Data, Fiscal Years 2016-2020) | Metric | June 27, 2020 (Millions) | June 29, 2019 (Millions) | June 30, 2018 (Millions) | July 1, 2017 (Millions) | July 2, 2016 (Millions) | |:-----------------------|:-------------------------|:-------------------------|:-------------------------|:------------------------|:------------------------| | Working capital | $4,048.4 | $4,297.8 | $4,641.1 | $5,080.0 | $4,061.5 | | Total assets | 8,105.2 | 8,564.6 | 9,596.8 | 9,699.6 | 11,239.8 | | Long-term debt | 1,424.8 | 1,419.9 | 1,489.2 | 1,729.2 | 1,339.2 | | Shareholders' equity | 3,726.4 | 4,140.5 | 4,685.1 | 5,182.1 | 4,691.3 | Key Financial Ratios (Fiscal Years 2016-2020) | Ratio | June 27, 2020 | June 29, 2019 | June 30, 2018 | July 1, 2017 | July 2, 2016 | |:-------------------------------------|:--------------|:--------------|:--------------|:-------------|:-------------| | Operating (loss) income % of sales | (0.0)% | 1.9% | 1.1% | 2.5% | 3.4% | | Net (loss) income % of sales | (0.2)% | 0.9% | (0.8)% | 3.0% | 3.0% | | Quick ratio | 1.5:1 | 1.4:1 | 1.4:1 | 1.8:1 | 0.8:1 | | Current ratio | 2.8:1 | 2.7:1 | 2.6:1 | 3.1:1 | 1.8:1 | | Total debt to capital ratio | 27.7% | 29.4% | 26.1% | 25.6% | 34.7% | Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Avnet's fiscal 2020 results were significantly impacted by global slowdowns and COVID-19, leading to a 9.7% sales decrease, $4.6 million operating loss, and $31.1 million net loss, despite strong operating cash flow Significant Risks and Uncertainties The COVID-19 pandemic and Texas Instruments agreement termination pose significant risks to Avnet's operations and financial performance - The COVID-19 pandemic has negatively impacted the global economy, supply chains, and financial markets, leading to increased logistics costs, softer product demand, and shipping delays for Avnet[119][120] - The termination of the distribution agreement with Texas Instruments by December 2020 is expected to result in lower sales and gross profit if not mitigated by strategic initiatives[122] Executive Summary Fiscal 2020 sales decreased 9.7% to $17.63 billion, with gross profit margin declining 104 basis points and an operating loss of $4.6 million - Sales for fiscal 2020 were $17.63 billion, a 9.7% decrease from fiscal 2019, primarily due to a global industry-wide slowdown and COVID-19 impacts[123] - Gross profit margin decreased by 104 basis points to 11.7% in fiscal 2020, attributed to product, customer, and geographical market mix changes, and market conditions[124][125] - Operating loss was $4.6 million in fiscal 2020, a 101.3% decrease from fiscal 2019, with adjusted operating income margin declining by 184 basis points[126] Sales Fiscal 2020 sales decreased 9.7% to $17.63 billion, with EC sales down 9.5% and Farnell sales down 11.3% due to global slowdowns Sales by Operating Group and Geographic Region (Fiscal Years 2018-2020) | Category | June 27, 2020 (Millions) | % of Total | June 29, 2019 (Millions) | % of Total | June 30, 2018 (Millions) | % of Total | 2020 to 2019 % Change | |:---------------------|:-------------------------|:-----------|:-------------------------|:-----------|:-------------------------|:-----------|:----------------------| | Operating Group: | | | | | | | | | EC | $16,340.1 | 92.7% | $18,060.3 | 92.5% | $17,543.6 | 92.2% | (9.5)% | | Farnell | 1,294.2 | 7.3% | 1,458.3 | 7.5% | 1,493.3 | 7.8% | (11.3)% | | Total Avnet | $17,634.3 | | $19,518.6 | | $19,036.9 | | | | Geographic Region:| | | | | | | | | Americas | $4,755.3 | 27.0% | $5,135.8 | 26.3% | $5,011.4 | 26.3% | (7.4)% | | EMEA | 5,753.4 | 32.6% | 6,762.9 | 34.6% | 6,790.9 | 35.7% | (14.9)% | | Asia/Pacific | 7,125.6 | 40.4% | 7,619.9 | 39.0% | 7,234.6 | 38.0% | (6.5)% | | Total Avnet | $17,634.3 | | $19,518.6 | | $19,036.9 | | | - EC sales decreased by 9.5% (8.7% in constant currency) and Farnell sales decreased by 11.3% (9.5% in constant currency) in fiscal 2020 compared to fiscal 2019[130] - Regional sales declines in fiscal 2020 were 7.4% in the Americas, 12.4% in EMEA (constant currency), and 6.5% in Asia (constant currency), driven by the global slowdown and COVID-19[131] Gross Profit and Gross Profit Margin Gross profit decreased 17.0% to $2.06 billion in fiscal 2020, with margin declining 104 basis points to 11.7% due to market conditions - Gross profit in fiscal 2020 was $2.06 billion, a 17.0% decrease from fiscal 2019, primarily due to declining sales[132] - Gross profit margin decreased by 104 basis points to 11.7% in fiscal 2020, impacted by unfavorable product, customer, and geographical market mix, and current market conditions including COVID-19[132] Selling, General and Administrative Expenses SG&A expenses decreased 1.7% to $1.84 billion in fiscal 2020, but increased as a percentage of sales and gross profit - SG&A expenses decreased by 1.7% to $1.84 billion in fiscal 2020, mainly due to sales decreases, cost savings from restructuring, and favorable foreign currency translation, partially offset by COVID-19 business continuity costs[133] - SG&A expenses as a percentage of sales increased to 10.4% (from 9.6% in FY19) and as a percentage of gross profit increased to 89.3% (from 75.4% in FY19), primarily due to the decrease in sales and gross profit margin[134] Goodwill and Intangible Asset Impairment Expenses Avnet incurred $144.1 million in goodwill and intangible asset impairment expenses in fiscal 2020, primarily in the third quarter - Avnet incurred $144.1 million in goodwill and intangible asset impairment expenses in fiscal 2020, primarily during the third quarter[135] Restructuring, Integration and Other Expenses The company recorded $45.5 million in restructuring costs in fiscal 2020, expecting $52.0 million in annualized operating cost savings - The company recorded $45.5 million in restructuring costs in fiscal 2020, expecting $52.0 million in incremental annualized operating cost savings[138] - Restructuring expenses included $34.7 million for severance, $3.7 million for facility exit costs, and $7.1 million for non-cash asset impairments, primarily related to information technology software[138] - Total restructuring, integration, and other expenses had an after-tax impact of $63.2 million, or $0.63 per diluted share, in fiscal 2020[138] Operating Income (Loss) Operating loss for fiscal 2020 was $4.6 million, a 101.3% decrease from fiscal 2019, driven by sales and margin declines - Operating loss for fiscal 2020 was $4.6 million, a 101.3% decrease from fiscal 2019 operating income of $365.9 million, primarily due to declines in sales, gross profit margin, and increased impairment expenses[140] - Adjusted operating income, excluding impairment, amortization, and restructuring expenses, was $302.9 million (1.7% of sales) in fiscal 2020, down from $695.7 million (3.6% of sales) in fiscal 2019[116][140] Interest and Other Financing Expenses, Net Interest and other financing expenses decreased 9.0% to $122.7 million in fiscal 2020 due to lower outstanding borrowings - Interest and other financing expenses decreased by 9.0% to $122.7 million in fiscal 2020, primarily due to lower outstanding borrowings compared to fiscal 2019[142] Other (Expense) Income, net Avnet reported $0.7 million of other expense in fiscal 2020, a significant change from $11.2 million of other income in fiscal 2019 - Avnet reported $0.7 million of other expense in fiscal 2020, a significant change from $11.2 million of other income in fiscal 2019, mainly due to $15.3 million in equity investment impairment expense[143] Income Tax Expense The effective tax rate on loss from continuing operations was a 76.9% benefit in fiscal 2020, compared to a 25.7% expense in fiscal 2019 - The effective tax rate on loss before income taxes from continuing operations was a benefit of 76.9% in fiscal 2020, compared to an expense of 25.7% in fiscal 2019[144] - The fiscal 2020 tax benefit resulted from a reduction in value of certain businesses for tax purposes, partially offset by valuation allowances against deferred tax assets[144] Loss from Discontinued Operations Loss from discontinued operations was $1.5 million in fiscal 2020, a decrease from $3.8 million in fiscal 2019 - Loss from discontinued operations was $1.5 million in fiscal 2020, a decrease from $3.8 million in fiscal 2019[146] Net Income (Loss) Avnet reported a net loss of $31.1 million, or $0.31 per diluted share, in fiscal 2020, compared to net income of $176.3 million in fiscal 2019 - Avnet reported a net loss of $31.1 million, or $0.31 per diluted share, in fiscal 2020, compared to net income of $176.3 million, or $1.59 per diluted share, in fiscal 2019[147] Fiscal 2019 Comparison to Fiscal 2018 For a comparison of fiscal 2019 and fiscal 2018 results, refer to the Company's Annual Report on Form 10-K for fiscal 2019 - For a comparison of fiscal 2019 and fiscal 2018 results, refer to the 'Management's Discussion and Analysis of Financial Condition and Results of Operations' in the Company's Annual Report on Form 10-K for the fiscal year ended June 29, 2019[148] Liquidity and Capital Resources Avnet generated $730.2 million in cash from operating activities in fiscal 2020, with $1.44 billion combined availability under credit facilities - Avnet generated $730.2 million in cash from operating activities in fiscal 2020, an increase from $591.1 million in fiscal 2019, driven by decreases in accounts receivable and inventories[149][150] - The company repaid $302.0 million of notes and $227.3 million under the Securitization Program in fiscal 2020, while receiving $223.1 million under the Credit Facility[151] - Capital expenditures decreased to $73.5 million in fiscal 2020 from $122.7 million in fiscal 2019, primarily for warehouse, facilities, and IT hardware/software[152] - As of June 27, 2020, Avnet had $477.0 million in cash and cash equivalents, with $1.44 billion combined availability under the Credit Facility and Securitization Program[163][164] - The company has temporarily suspended share repurchases and expects to use cash for restructuring, integration, and other expenses related to operating cost-saving plans[168][169] Cash Flows Operating cash flows from continuing operations were $730.2 million in fiscal 2020, driven by decreases in accounts receivable and inventories - Operating cash flows from continuing operations were $730.2 million in fiscal 2020, up from $591.1 million in fiscal 2019, driven by decreases in accounts receivable ($221.5M) and inventories ($266.8M)[149][150] - In fiscal 2020, the company repaid $302.0 million of notes and $227.3 million under the Securitization Program, while receiving $223.1 million under the Credit Facility[151] - Cash used for capital expenditures decreased to $73.5 million in fiscal 2020 from $122.7 million in fiscal 2019[152] Financing Transactions Avnet uses diverse financing arrangements, including public debt, bank loans, and a securitization program, to fund operations - Avnet uses diverse financing arrangements, including public debt, bank loans, a revolving credit facility, and an accounts receivable securitization program, to fund operations and achieve lower funding costs[154] - The company sells certain trade accounts receivable on a non-recourse basis to third-party financial institutions through factoring agreements, accounted for as sales of receivables[156] Covenants and Conditions Avnet was in compliance with all covenants as of June 27, 2020, with subsequent amendments to its Securitization Program and Credit Facility - Avnet was in compliance with all covenants of its Securitization Program and Credit Facility as of June 27, 2020, which require maintaining minimum interest coverage and leverage ratios[158][160] - Subsequent to fiscal year-end, the Securitization Program was amended to extend its term to July 30, 2021, and eliminate certain financial covenants. The Credit Facility was also amended to temporarily adjust interest coverage and leverage covenants[159][161] Liquidity Cash and cash equivalents were $477.0 million as of June 27, 2020, with $1.44 billion combined availability under credit facilities - Cash and cash equivalents were $477.0 million as of June 27, 2020, with $411.2 million held outside the United States[163] - Combined availability under the Credit Facility and Securitization Program was $1.44 billion as of June 27, 2020[164] - The company generated $730.2 million in cash flows from operating activities in fiscal 2020, typically generating cash during periods of weakening demand[165] - Avnet has temporarily suspended share repurchases and expects to use cash for restructuring and integration expenses related to operating cost-saving plans[168][169] Long-Term Contractual Obligations This section details Avnet's long-term contractual obligations, including debt, interest expense, and operating lease obligations Long-Term Contractual Obligations (as of June 27, 2020, in millions) | Contractual Obligations | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | |:------------------------------------|:-----------|:-----------------|:----------|:----------|:------------------| | Long-term debt obligations | $1,431.5 | $0.1 | $881.1 | $0.3 | $550.0 | | Interest expense on long-term debt | 210.4 | 56.7 | 82.7 | 50.9 | 20.1 | | Operating lease obligations | 375.5 | 61.5 | 97.9 | 63.9 | 152.2 | - The company had an estimated liability for income tax contingencies of $116.5 million as of June 27, 2020, with $1.7 million expected to be paid within the next 12 months[173] Critical Accounting Policies Avnet's critical accounting policies involve significant judgments and estimates, particularly for inventory valuation and income taxes - Avnet's critical accounting policies involve significant judgments and estimates, particularly for valuation of inventories and accounting for income taxes[175][176] Valuation of Inventories Inventories are recorded at the lower of cost or net realizable value, with regular evaluations for demand, obsolescence, and market prices - Inventories are recorded at the lower of cost or estimated net realizable value, with regular evaluations for expected customer demand, obsolescence, and market prices[176][179] - Write-downs consider contractual provisions with suppliers for price protection and return rights, but actual net realizable values could differ from estimates[179] Accounting for Income Taxes Management judgment is required for determining income tax expense, unrecognized tax benefits, and measuring deferred tax assets and liabilities - Management judgment is required for determining income tax expense, unrecognized tax benefits, and measuring deferred tax assets and liabilities, including valuation allowances based on future taxable income[180] - Contingent liabilities are established for uncertain tax matters based on the likelihood of sustaining a tax benefit upon examination, with potential fluctuations in the effective tax rate[181] Recently Issued Accounting Pronouncements Avnet is evaluating the effects of adopting new ASU pronouncements, with no material impact expected from some in fiscal 2021 - Avnet is evaluating the potential effects of adopting ASU No. 2020-04 (Reference Rate Reform), ASU No. 2020-01 (Equity Securities, Equity Method, Derivatives), and ASU No. 2019-12 (Simplifying Income Taxes), all effective in fiscal 2022[184][185][186][187] - The company does not expect a material impact from the adoption of ASU No. 2018-15 (Internal-Use Software) in fiscal 2021 or ASU No. 2018-14 (Defined Benefit Plans Disclosure) in fiscal 2022[188][189] - Avnet is completing its evaluation of Topic 326 (Credit Losses) and does not expect a material impact on retained earnings or receivables upon adoption in fiscal 2021[190] - Sales for fiscal 2020 decreased by 9.7% (8.7% in constant currency) due to lower demand from the global industry-wide slowdown and the COVID-19 pandemic[123][129] - Gross profit margin for fiscal 2020 declined by 104 basis points to 11.7%, primarily due to unfavorable product, customer, and geographical market mix, and overall market conditions[124][125][132] - Avnet reported an operating loss of $4.6 million in fiscal 2020, a 101.3% decrease from fiscal 2019 operating income, driven by sales decline, gross profit margin reduction, and increased impairment expenses[126][140] - The company incurred $144.1 million in goodwill and intangible asset impairment expenses and $81.9 million in restructuring, integration, and other expenses in fiscal 2020[135][106] - Net loss for fiscal 2020 was $31.1 million, or $0.31 per diluted share, compared to net income of $176.3 million, or $1.59 per diluted share, in fiscal 2019[147] - Cash flows from operating activities increased to **