Avnet(AVT) - 2021 Q4 - Annual Report

Part I Business Avnet is a global technology distributor with two segments, Electronic Components and Farnell, serving 2.1 million customers across 140 countries with design to production support - Avnet operates through Electronic Components (EC) for high-volume and Farnell for lower-volume, e-commerce customers[16][18][22] Sales by Major Product Category (Fiscal Years 2019-2021) | Product Category | FY 2021 Sales (Millions) | FY 2020 Sales (Millions) | FY 2019 Sales (Millions) | | :--- | :--- | :--- | :--- | | Semiconductors | $14,722.8 | $13,440.3 | $14,973.3 | | Interconnect, passive & electromechanical (IP&E) | $3,649.0 | $3,146.0 | $3,516.0 | | Computers | $640.6 | $572.0 | $533.1 | | Other | $522.3 | $476.0 | $496.2 | | Total Sales | $19,534.7 | $17,634.3 | $19,518.6 | - Main competitors include Arrow Electronics, Future Electronics, World Peace Group, Mouser Electronics, and Digi-Key Electronics[26] - As of July 3, 2021, Avnet employed approximately 14,500 people, a slight decrease from the prior year[30] - The Board of Directors is 36% diverse, and the total workforce is 45% female, reflecting an emphasis on human capital[33] Risk Factors The company faces significant risks including customer demand shifts, supplier disruptions like the TI contract termination, international operational complexities, financial liquidity, and IT security threats - Sales of semiconductors represented approximately 75% of consolidated sales in fiscal 2021, tying performance closely to the semiconductor industry's fluctuations[42] - The distribution contract with Texas Instruments (TI), accounting for 9% of total sales in fiscal 2020, was terminated in December 2020, potentially leading to lower sales and gross profits[46] - International operations, comprising approximately 78% of sales in fiscal 2021, expose the company to risks like currency fluctuations, trade restrictions, and complex tax laws[48] - The COVID-19 pandemic has negatively impacted the global economy and Avnet's operations, increasing logistics costs, fluctuating demand, and extending lead times[80] - The company faces liquidity and capital resource constraints, with cash needs dependent on operations and financial markets, and the LIBOR phase-out potentially increasing financing costs[64][65] Unresolved Staff Comments This item is not applicable as the company has no unresolved staff comments - Not applicable[90] Properties Avnet owns 2.1 million and leases 4.4 million square feet globally for operations, with key facilities in Arizona, Belgium, Germany, and the UK Summary of Key Facilities | Location | Footage (sq. ft.) | Owned/Leased | 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 | | Phoenix, Arizona | 180,000 | Leased | Corporate and EC Americas headquarters | Legal Proceedings The company is involved in various legal matters, but management believes no specific disclosure is required and expects no material adverse effect on financial position or liquidity - The company has concluded that no particular pending legal proceeding requires specific public disclosure under SEC regulations[93] - Management believes the resolution of current legal matters will not have a material adverse effect on the company's financial position or liquidity[94] Mine Safety Disclosures This item is not applicable to the company - Not applicable[95] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Avnet's common stock trades on Nasdaq (AVT), with $469.0 million remaining for share repurchases, and its 5-year return underperformed the Nasdaq Composite - The Company's common stock is listed on the Nasdaq Global Select Market under the symbol AVT[97] - As of July 3, 2021, the Company had $469.0 million remaining under its share repurchase authorization, with no shares repurchased in the fourth quarter of fiscal 2021[105] 5-Year Cumulative Total Return Comparison | | 7/2/2016 | 7/1/2017 | 6/30/2018 | 6/29/2019 | 6/27/2020 | 7/3/2021 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Avnet, Inc. | $100.00 | $98.17 | $110.29 | $118.55 | $69.87 | $110.11 | | Nasdaq Composite | $100.00 | $128.30 | $158.57 | $170.91 | $216.96 | $315.10 | | Peer Group | $100.00 | $127.74 | $121.27 | $121.78 | $119.17 | $259.50 | Reserved This item is reserved and contains no information - Item 6 is noted as [Reserved][106] Management's Discussion and Analysis of Financial Condition and Results of Operations Fiscal 2021 sales grew 10.8% to $19.53 billion, with operating income at $281.4 million (up from a loss), though operating cash flow decreased to $90.9 million due to working capital needs Fiscal 2021 vs. Fiscal 2020 Key Metrics | Metric | Fiscal 2021 | Fiscal 2020 | Change | | :--- | :--- | :--- | :--- | | Sales | $19.53B | $17.63B | +10.8% | | Gross Profit Margin | 11.5% | 11.7% | -23 bps | | Operating Income (Loss) | $281.4M | ($4.6M) | +$286.0M | | Adjusted Operating Income | $407.0M | $302.9M | +34.4% | - Organic sales in constant currency, excluding the impact of the terminated TI distribution contract, increased 14.8% year-over-year in fiscal 2021[121] - Cash flow from operating activities was $90.9 million in fiscal 2021, a decrease from $730.2 million in fiscal 2020, primarily due to cash used for working capital to support sales growth[135] - As of July 3, 2021, the company had combined availability of $1.64 billion under its Credit Facility and Securitization Program[145] - The company has suspended share repurchases due to the impacts of the COVID-19 pandemic and the need to manage liquidity and leverage[150] Quantitative and Qualitative Disclosures About Market Risk Avnet faces market risks from interest rates and foreign currency, mitigating currency risk with hedges; a 10% currency change could impact contracts by $170.0 million Debt Profile as of July 3, 2021 (in millions) | Debt Type | Carrying Value | Fair Value | Average Interest Rate | | :--- | :--- | :--- | :--- | | Fixed rate debt | $1,201.2 | $1,291.4 | 4.3% | | Floating rate debt | $23.1 | $23.1 | 1.2% | - The company uses derivative financial instruments, primarily forward foreign currency exchange contracts, to reduce risk from transactions in non-functional currencies, serving as economic hedges, not for speculation[171] - A hypothetical 10% change in foreign currency exchange rates on contracts outstanding at July 3, 2021, would result in an approximate $170.0 million impact to the fair value of the contracts, generally offset by the underlying exposure[171] Financial Statements and Supplementary Data This section presents Avnet's audited consolidated financial statements for the three fiscal years ended July 3, 2021, with an unqualified opinion from KPMG LLP on both financials and internal controls Consolidated Statements of Operations Highlights (in thousands, except per share data) | | FY 2021 | FY 2020 | FY 2019 | | :--- | :--- | :--- | :--- | | Sales | $19,534,679 | $17,634,333 | $19,518,592 | | Gross Profit | $2,240,630 | $2,063,456 | $2,486,102 | | Operating Income (Loss) | $281,408 | $(4,628) | $365,911 | | Net Income (Loss) | $193,114 | $(31,081) | $176,337 | | Diluted EPS (Loss) | $1.93 | $(0.31) | $1.59 | Consolidated Balance Sheets Highlights (in thousands) | | July 3, 2021 | June 27, 2020 | | :--- | :--- | :--- | | Total Current Assets | $7,163,421 | $6,328,806 | | Total Assets | $8,925,422 | $8,105,197 | | Total Current Liabilities | $3,055,238 | $2,280,366 | | Total Liabilities | $4,841,238 | $4,378,799 | | Total Shareholders' Equity | $4,084,184 | $3,726,398 | Consolidated Statements of Cash Flows Highlights (in thousands) | | FY 2021 | FY 2020 | FY 2019 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $90,949 | $730,182 | $534,770 | | Net cash used for investing activities | $(61,196) | $(135,017) | $(25,212) | | Net cash used for financing activities | $(314,013) | $(644,550) | $(582,676) | Segment Sales and Operating Income (in millions) | Segment | FY 2021 Sales | FY 2021 Operating Income | | :--- | :--- | :--- | | Electronic Components | $18,030.5 | $454.8 | | Farnell | $1,504.2 | $86.9 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There were no changes in or disagreements with accountants on accounting and financial disclosure during the period - None[358] Controls and Procedures Management, including CEO and CFO, concluded disclosure controls and internal control over financial reporting were effective as of July 3, 2021, with no material changes reported - The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective as of the end of the reporting period[358] - Management concluded that the Company maintained effective internal control over financial reporting as of July 3, 2021, based on the 2013 COSO framework[359] - There were no changes to the Company's internal control over financial reporting during the fourth quarter of fiscal 2021 that have materially affected, or are reasonably likely to materially affect, the controls[361] Other Information This item is not applicable - Not applicable[361] Part III Directors, Executive Officers and Corporate Governance The information required for this item is incorporated by reference from the company's definitive proxy statement for the Annual Meeting of Stockholders scheduled for November 18, 2021 - Information is incorporated by reference to the Company's definitive proxy statement[362] Executive Compensation The information required for this item is incorporated by reference from the company's definitive proxy statement for the Annual Meeting of Stockholders scheduled for November 18, 2021 - Information is incorporated by reference to the Company's definitive proxy statement[364] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required for this item is incorporated by reference from the company's definitive proxy statement for the Annual Meeting of Stockholders scheduled for November 18, 2021 - Information is incorporated by reference to the Company's definitive proxy statement[366] Certain Relationships and Related Transactions, and Director Independence The information required for this item is incorporated by reference from the company's definitive proxy statement for the Annual Meeting of Stockholders scheduled for November 18, 2021 - Information is incorporated by reference to the Company's definitive proxy statement[367] Principal Accounting Fees and Services The information required for this item is incorporated by reference from the company's definitive proxy statement for the Annual Meeting of Stockholders scheduled for November 18, 2021 - Information is incorporated by reference to the Company's definitive proxy statement[368] Part IV Exhibits and Financial Statement Schedules This section lists financial statements from Item 8 and provides an index of exhibits, including governance documents, debt agreements, and SOX certifications by CEO and CFO - The financial statements and supplementary data are listed in the index under Item 8[379] - An index of exhibits is provided, including governance documents, debt agreements (such as the Securitization Program and Credit Agreement), and executive compensation plans[380][382][385] - Includes Schedule II - Valuation and Qualifying Accounts, which details changes in the allowance for credit losses and valuation allowances on tax loss carry-forwards[392][393] - Certifications by the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are filed as exhibits[388]