Avnet(AVT) - 2022 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents Avnet's unaudited consolidated financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures for the interim period Item 1. Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements of Avnet, Inc. and its subsidiaries, including balance sheets, statements of operations, comprehensive income, shareholders' equity, and cash flows, along with detailed notes explaining the financial figures and accounting policies Consolidated Balance Sheets This table provides a snapshot of the company's assets, liabilities, and shareholders' equity at two specific points in time | Metric | January 1, 2022 (Thousands) | July 3, 2021 (Thousands) | | :-------------------------- | :-------------------------- | :----------------------- | | Total Assets | $9,580,870 | $8,925,422 | | Total Liabilities | $5,377,644 | $4,841,238 | | Total Shareholders' Equity | $4,203,226 | $4,084,184 | | Current Assets | $7,944,211 | $7,163,421 | | Current Liabilities | $3,688,505 | $3,055,238 | Consolidated Statements of Operations This table details the company's sales, gross profit, operating income, and net income over specified quarterly and six-month periods | Metric | Q2 FY22 (Thousands) | Q2 FY21 (Thousands) | 6 Months FY22 (Thousands) | 6 Months FY21 (Thousands) | | :-------------------------- | :-------------------- | :------------------ | :------------------------ | :------------------------ | | Sales | $5,865,217 | $4,668,172 | $11,449,912 | $9,391,232 | | Gross Profit | $713,035 | $511,253 | $1,372,727 | $1,027,333 | | Operating Income | $211,672 | $57,221 | $379,915 | $75,723 | | Net Income | $150,821 | $19,163 | $262,139 | $274 | | Diluted EPS | $1.50 | $0.19 | $2.60 | $0.00 | Consolidated Statements of Comprehensive Income This table presents the company's net income and other comprehensive income components, such as foreign currency translation adjustments | Metric | Q2 FY22 (Thousands) | Q2 FY21 (Thousands) | 6 Months FY22 (Thousands) | 6 Months FY21 (Thousands) | | :-------------------------------- | :-------------------- | :------------------ | :------------------------ | :------------------------ | | Net Income | $150,821 | $19,163 | $262,139 | $274 | | Foreign currency translation and other | $(48,982) | $120,000 | $(78,018) | $210,373 | | Pension adjustments, net | $4,010 | $3,983 | $8,022 | $13,606 | | Total Comprehensive Income | $105,849 | $143,146 | $192,143 | $224,253 | Consolidated Statements of Shareholders' Equity This table outlines changes in the company's shareholders' equity, including net income, dividends, and stock repurchases | Metric | January 1, 2022 (Thousands) | July 3, 2021 (Thousands) | | :-------------------------- | :-------------------------- | :----------------------- | | Total Shareholders' Equity | $4,203,226 | $4,084,184 | | Net Income (Q2 FY22) | $150,821 | N/A | | Cash Dividends (Q2 FY22) | $(23,749) | N/A | | Repurchases of Common Stock (Q2 FY22) | $(35,342) | N/A | Consolidated Statements of Cash Flows This table summarizes the cash inflows and outflows from operating, investing, and financing activities over specified periods | Metric | 6 Months FY22 (Thousands) | 6 Months FY21 (Thousands) | | :-------------------------------------- | :------------------------ | :------------------------ | | Net cash flows (used) provided by operating activities | $(263,209) | $207,394 | | Net cash flows provided (used) for financing activities | $199,238 | $(272,923) | | Net cash flows provided (used) for investing activities | $46,154 | $(47,668) | | Cash and cash equivalents at end of period | $167,818 | $376,333 | Notes to Consolidated Financial Statements This section provides detailed explanations and disclosures for the figures presented in the consolidated financial statements 1. Basis of presentation and new accounting pronouncements This note explains the basis for preparing the unaudited interim financial statements, highlights the impact of the 52/53 week fiscal year, and discusses recently adopted and issued accounting pronouncements, none of which had a material impact on the consolidated financial statements - Fiscal 2022 contains 52 weeks (26 weeks for the first six months) compared to fiscal 2021 which contained 53 weeks (27 weeks for the first six months), impacting year-over-year comparisons[23] - The adoption of ASU No. 2019-12 (Simplifying the Accounting for Income Taxes) in fiscal 2022 did not have a material impact[23] - The Company is evaluating ASU No. 2020-04 and ASU No. 2021-01 (Reference Rate Reform) but does not currently expect a material impact[24] 2. Receivables This note details the company's receivables and allowance for credit losses, showing an increase in gross receivables and a slight increase in the allowance for credit losses, with credit loss provisions increasing year-over-year | Metric | January 1, 2022 (Thousands) | July 3, 2021 (Thousands) | | :-------------------------- | :-------------------------- | :----------------------- | | Receivables | $4,167,281 | $3,664,290 | | Allowance for Credit Losses | $(89,574) | $(88,160) | | Metric | 6 Months FY22 (Thousands) | 6 Months FY21 (Thousands) | | :-------------------- | :------------------------ | :------------------------ | | Credit Loss Provisions | $8,391 | $4,438 | 3. Goodwill and intangible assets This note provides a breakdown of goodwill by reportable segment and details acquired intangible assets, including their net book value and estimated future amortization expense, showing a slight decrease in goodwill and intangible assets | Segment | January 1, 2022 (Thousands) | July 3, 2021 (Thousands) | | :-------------------- | :-------------------------- | :----------------------- | | Electronic Components | $305,602 | $310,582 | | Farnell | $518,126 | $527,523 | | Total Goodwill | $823,728 | $838,105 | | Intangible Asset Type | January 1, 2022 Net Book Value (Thousands) | July 3, 2021 Net Book Value (Thousands) | | :-------------------- | :----------------------------------------- | :-------------------------------------- | | Customer related | $10,592 | $12,024 | | Trade name | $7,468 | $12,165 | | Technology and other | $1,211 | $4,350 | | Total Intangible Assets, Net | $19,271 | $28,539 | | Fiscal Year | Estimated Future Amortization Expense (Thousands) | | :-------------------------- | :------------------------------------------------ | | Remainder of fiscal 2022 | $6,250 | | 2023 | $6,525 | | 2024 | $3,184 | | 2025 | $1,472 | | 2026 | $1,472 | | 2027 | $368 | | Total | $19,271 | 4. Debt This note details the company's short-term and long-term debt, including bank credit facilities, public notes, and the accounts receivable securitization program, highlighting an increase in short-term debt and overall debt fair value, while confirming compliance with all debt covenants | Debt Type | January 1, 2022 (Thousands) | July 3, 2021 (Thousands) | | :-------------------------- | :-------------------------- | :----------------------- | | Short-term debt | $350,000 | $23,078 | | Long-term debt | $1,144,592 | $1,191,329 | - The Securitization Program allows for borrowings up to $450 million, with receivables totaling $915.6 million as of January 1, 2022, providing security for borrowings[40] - The Company has a five-year $1.25 billion revolving credit facility expiring in June 2023 and was in compliance with all covenants as of January 1, 2022[41] | Metric | January 1, 2022 (Thousands) | July 3, 2021 (Thousands) | | :-------------------------- | :-------------------------- | :----------------------- | | Carrying value of total debt | $1,490,000 | $1,210,000 | | Fair value of total debt | $1,560,000 | $1,300,000 | 5. Leases This note provides information on the company's operating leases, primarily for real property, detailing lease costs, future minimum payments, and key lease terms and discount rates | Metric | Q2 FY22 (Thousands) | Q2 FY21 (Thousands) | 6 Months FY22 (Thousands) | 6 Months FY21 (Thousands) | | :-------------------- | :-------------------- | :------------------ | :------------------------ | :------------------------ | | Total Lease Cost | $23,862 | $23,518 | $47,826 | $48,208 | | Fiscal Year | Total Future Operating Lease Payments (Thousands) | | :-------------------------- | :------------------------------------------------ | | Remainder of fiscal 2022 | $34,027 | | 2023 | $59,916 | | 2024 | $43,094 | | 2025 | $33,862 | | 2026 | $28,943 | | Thereafter | $133,754 | | Total | $333,596 | | Metric | January 1, 2022 | January 2, 2021 | | :-------------------------------- | :-------------- | :-------------- | | Weighted-average remaining lease term in years | 8.9 | 9.3 | | Weighted-average discount rate | 3.8% | 3.8% | 6. Derivative financial instruments This note discusses the company's use of economic hedges, primarily forward foreign exchange contracts, to mitigate foreign currency risk, and reports the fair values and net losses from these instruments, which increased year-over-year - The Company uses economic hedges, primarily forward foreign exchange contracts (typically <60 days maturity), to reduce foreign currency exchange rate risk[50] - Foreign currency exposure primarily relates to international transactions in currencies such as U.S. Dollar, Euro, British Pound, Japanese Yen, Chinese Yuan, Taiwan Dollar, Canadian Dollar, and Mexican Peso[51] | Metric | Q2 FY22 (Thousands) | Q2 FY21 (Thousands) | 6 Months FY22 (Thousands) | 6 Months FY21 (Thousands) | | :--------------------------------- | :-------------------- | :------------------ | :------------------------ | :------------------------ | | Net derivative financial instrument loss | $(7,012) | $(2,810) | $(15,783) | $(10,627) | 7. Commitments and contingencies This note states that the company is involved in various legal proceedings and investigations, but management does not anticipate a material adverse effect on financial condition or liquidity, though results of operations could be impacted in any single reporting period. The company has accrued $14.7 million for compliance-related matters - Management does not anticipate a material adverse effect on the Company's financial condition, liquidity, or results of operations from legal matters, but resolution could be material to results of operations in any single reporting period[55][56] - As of January 1, 2022, aggregate estimated liabilities for compliance-related matters were $14.7 million[56] - A gain on legal settlement of $8.2 million was recorded in the first six months of fiscal 2021[57] 8. Income taxes This note reports the effective tax rates for the second quarter and first six months of fiscal 2022 and 2021, noting that prior year rates were unfavorably impacted by valuation allowances. The company is evaluating new U.S. Treasury regulations that could significantly affect Q3 FY22 income tax expense | Metric | Q2 FY22 | Q2 FY21 | 6 Months FY22 | 6 Months FY21 | | :-------------------- | :------ | :------ | :------------ | :------------ | | Effective Tax Rate | 21.4% | 44.3% | 22.2% | 97.5% | - The effective tax rate for Q2 and 6M FY21 was unfavorably impacted primarily by increases to valuation allowances[58][59] - New U.S. Treasury regulations impacting foreign tax credit utilization, published in January 2022, could have a significant impact on income tax expense in the third quarter of fiscal 2022[59] 9. Pension plan This note details the net periodic pension cost for the company's noncontributory defined benefit pension plan, showing a shift from a net cost to a net benefit, and outlines expected future contributions | Metric | Q2 FY22 (Thousands) | Q2 FY21 (Thousands) | 6 Months FY22 (Thousands) | 6 Months FY21 (Thousands) | | :-------------------------------- | :-------------------- | :------------------ | :------------------------ | :------------------------ | | Net periodic pension (benefit) cost | $(499) | $720 | $(997) | $1,440 | - The Company made $8.0 million in contributions during the first six months of fiscal 2022 and expects to make additional contributions of up to $8.0 million in the remainder of fiscal 2022[62] 10. Shareholders' equity This note discusses the company's share repurchase program, including the authorized amount and recent repurchases, and details common stock dividends paid during the period - The Board of Directors authorized a share repurchase program totaling $2.95 billion; $423.1 million remained under authorization as of January 1, 2022[63] - During Q2 FY22, the Company repurchased 0.9 million shares for a total cost of $35.3 million[63] - A dividend of $0.24 per common share was approved in November 2021, resulting in $23.7 million in payments during December 2021[64] 11. Earnings per share This note provides the calculation of basic and diluted earnings per share, along with the weighted-average common shares used in the calculation, showing significant increases in EPS year-over-year | Metric | Q2 FY22 | Q2 FY21 | 6 Months FY22 | 6 Months FY21 | | :-------------------- | :------ | :------ | :------------ | :------------ | | Basic EPS | $1.52 | $0.19 | $2.64 | $0.00 | | Diluted EPS | $1.50 | $0.19 | $2.60 | $0.00 | | Weighted average common shares for basic EPS (Thousands) | 99,032 | 98,937 | 99,340 | 98,917 | | Weighted average common shares for diluted EPS (Thousands) | 100,286 | 99,932 | 100,701 | 99,897 | 12. Additional cash flow information This note presents supplemental cash flow information, including non-cash investing and financing activities, interest payments, and income tax payments | Metric | 6 Months FY22 (Thousands) | 6 Months FY21 (Thousands) | | :-------------------------------------- | :------------------------ | :------------------------ | | Capital expenditures incurred but not paid | $5,547 | $4,359 | | Unsettled share repurchases | $275 | — | | Interest payments | $49,192 | $50,507 | | Income tax net payments | $74,889 | $51,835 | 13. Segment information This note breaks down sales and operating income by the two reportable segments, Electronic Components (EC) and Farnell, and by geographic area, highlighting strong growth across all segments and regions, and notes the potential impact of the Maxim Integrated Products, Inc. distribution agreement termination - The Company's reportable segments are Electronic Components (EC) and Farnell, both operating in the Americas, EMEA, and Asia[71] | Segment | Q2 FY22 Sales (Thousands) | Q2 FY21 Sales (Thousands) | Q2 FY22 Operating Income (Thousands) | Q2 FY21 Operating Income (Thousands) | | :-------------------- | :------------------------ | :------------------------ | :----------------------------------- | :----------------------------------- | | Electronic Components | $5,424,349 | $4,342,386 | $188,904 | $103,922 | | Farnell | $440,868 | $325,786 | $60,189 | $14,592 | | Total Sales | $5,865,217 | $4,668,172 | N/A | N/A | | Geographic Area | Q2 FY22 Sales (Thousands) | Q2 FY21 Sales (Thousands) | | :---------------- | :------------------------ | :------------------------ | | Americas | $1,391,567 | $1,101,450 | | EMEA | $1,840,789 | $1,346,347 | | Asia/Pacific | $2,632,861 | $2,220,375 | - Sales from Maxim Integrated Products, Inc. represented approximately 3% of total sales in fiscal 2021, and the termination of this distribution agreement may lead to lower future sales and gross profit[98] 14. Restructuring expenses This note details the activity related to restructuring liabilities, primarily severance and facility contract costs, established in prior fiscal years. The majority of the remaining amounts are expected to be paid by the end of fiscal 2022 | Metric | January 1, 2022 (Thousands) | July 3, 2021 (Thousands) | | :-------------------------- | :-------------------------- | :----------------------- | | Total Restructuring Liabilities | $19,653 | $39,962 | | Severance | $15,992 | $35,099 | | Facility Contract Costs | $3,661 | $4,863 | | Cash payments (6M FY22) | $(16,752) | N/A | - The Company expects the majority of the remaining restructuring liabilities to be paid by the end of fiscal 2022[78] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides a comprehensive analysis of Avnet's financial performance and condition for the second quarter and first six months of fiscal 2022, highlighting significant sales and profit growth driven by strong demand, improved gross profit margins, and operating leverage, while also discussing liquidity and capital resources Overview This section introduces Avnet as a global technology distributor and solutions provider, outlining its operational structure and market presence - Avnet, Inc. is a leading global technology distributor and solutions provider, supporting customers throughout a product's lifecycle[87] - The Company operates through two primary groups: Electronic Components (EC) and Farnell, with operations across the Americas, EMEA, and Asia[88] Results of Operations This section analyzes the company's financial performance, including sales, gross profit, operating income, and net income, for the reported periods Executive Summary This summary highlights key financial performance for the second quarter of fiscal 2022, including substantial increases in sales, gross profit margin, and operating income, driven by strong demand and favorable market conditions - Sales in Q2 FY22 increased by 25.6% year-over-year to $5.87 billion, or 27.4% in constant currency[89] - Gross profit margin increased by 121 basis points to 12.2% in Q2 FY22, driven by strong demand and improvements in product, customer, and geographic sales mix[89] - Operating income in Q2 FY22 was $211.7 million, a $154.5 million increase year-over-year, with operating income margin rising to 3.6% from 1.2%[90] - Adjusted operating income margin increased by 197 basis points to 3.7% in Q2 FY22[90] Sales Sales for the second quarter of fiscal 2022 increased significantly by 25.6% year-over-year to $5.87 billion, with organic sales in constant currency (excluding TI sales) up 28.8%, reflecting strong global demand for electronic components across both operating groups and all regions - Reported sales for Q2 FY22 were $5.87 billion, a 25.6% increase year-over-year, and 27.4% in constant currency[94] - Organic sales in constant currency, excluding the impact of the Texas Instruments (TI) distribution agreement termination, increased by 28.8% year-over-year in Q2 FY22[94] - Electronic Components (EC) sales increased by 24.9% to $5.42 billion in Q2 FY22, with organic sales (excluding TI) up 28.2% in constant currency, driven by strong demand in transportation and industrial sectors[97] - Farnell sales increased by 35.3% to $440.9 million in Q2 FY22, or 35.8% in constant currency, due to increased market demand across all regions[97] - Sales for the first six months of fiscal 2022 were $11.45 billion, an increase of $2.06 billion compared to the prior year, driven by strong global demand for electronic components[98] - The termination of the Maxim Integrated Products, Inc. distribution agreement (which represented ~3% of total sales in FY21) may lead to lower future sales and gross profit[98] Gross Profit Gross profit for the second quarter of fiscal 2022 increased by 39.5% to $713.0 million, with the gross profit margin rising to 12.2% (up 121 basis points), primarily due to strong demand for electronic components, favorable pricing, and an improved geographic sales mix, particularly in higher-margin western regions - Gross profit for Q2 FY22 was $713.0 million, a 39.5% increase from Q2 FY21[99] - Gross profit margin increased to 12.2% in Q2 FY22 (up 121 basis points from 11.0% in Q2 FY21), driven by strong demand, favorable pricing, and geographic sales mix[99] - Sales in higher gross profit margin western regions accounted for approximately 55% of sales in Q2 FY22, up from 52% in Q2 FY21[99] - Gross profit for the first six months of fiscal 2022 was $1.37 billion, with a gross profit margin of 12.0%, compared to $1.03 billion and 10.9% in the prior year period[99] Selling, General and Administrative Expenses Selling, general and administrative (SG&A) expenses increased by 13.4% to $501.4 million in Q2 FY22, primarily due to costs supporting sales growth and inflation. However, SG&A expenses decreased as a percentage of sales (to 8.6%) and gross profit (to 70.3%), reflecting operating leverage from higher sales and gross profit margins - SG&A expenses were $501.4 million in Q2 FY22, a 13.4% increase year-over-year, primarily due to costs supporting sales growth, inflation (merit pay), and foreign currency impact[100] - SG&A expenses as a percentage of sales decreased to 8.6% in Q2 FY22 from 9.5% in Q2 FY21[101] - SG&A expenses as a percentage of gross profit decreased to 70.3% in Q2 FY22 from 86.5% in Q2 FY21, primarily due to operating leverage from higher sales and gross profit margin[101] - For the first six months of fiscal 2022, SG&A expenses were $987.5 million (8.6% of sales) compared to $913.2 million (9.7% of sales) in the prior year period[102] Restructuring, Integration, and Other Expenses The company incurred no restructuring, integration, and other expenses during the second quarter of fiscal 2022. For the first six months of fiscal 2022, these expenses totaled $5.3 million, almost entirely related to integration costs - No restructuring, integration, and other expenses were incurred during Q2 FY22[104] - For the first six months of fiscal 2022, $5.3 million in restructuring, integration, and other expenses were recorded, substantially all related to integration costs[104] Operating Income Operating income for the second quarter of fiscal 2022 surged to $211.7 million, a $154.5 million increase year-over-year, with adjusted operating income rising by 170.7%. This significant growth was primarily driven by increased sales and improved gross profit margins across both EC and Farnell segments - Operating income for Q2 FY22 was $211.7 million, an increase of $154.5 million from Q2 FY21[105] - Adjusted operating income for Q2 FY22 was $215.5 million, a 170.7% increase year-over-year, driven by increased sales and gross profit margin[105] - EC operating income margin increased by 109 basis points to 3.5%, and Farnell operating income margin increased by 917 basis points to 13.7% in Q2 FY22[105] - Adjusted operating income for the first six months of fiscal 2022 was $394.2 million, a 172.5% increase year-over-year[106] Interest and Other Financing Expenses, Net and Other Income (Expense), Net Interest and other financing expenses remained relatively stable in Q2 FY22 but decreased slightly for the first six months. Other income (expense), net, shifted from an expense to income, primarily due to the absence of an equity investment impairment and differences in foreign currency exchange rates compared to the prior year - Interest and other financing expenses in Q2 FY22 were $21.6 million (up 0.7% YoY), and $44.5 million for the first six months of FY22 (down 1.6% YoY)[107] - Other income (expense), net, was $1.7 million income in Q2 FY22 (vs. $1.3 million expense in Q2 FY21) and $1.3 million income for the first six months of FY22 (vs. $20.8 million expense in 6M FY21)[108] - The year-over-year difference in other expense was primarily due to an equity investment impairment expense in 6M FY21 and foreign currency exchange rate differences[108] Income Tax The effective tax rate for Q2 FY22 was 21.4% and 22.2% for the first six months, significantly lower than the prior year periods which were unfavorably impacted by valuation allowances. The company is currently evaluating new U.S. Treasury regulations that could have a significant impact on income tax expense in Q3 FY22 | Metric | Q2 FY22 | Q2 FY21 | 6 Months FY22 | 6 Months FY21 | | :-------------------- | :------ | :------ | :------------ | :------------ | | Effective Tax Rate | 21.4% | 44.3% | 22.2% | 97.5% | - The effective tax rates for Q2 and 6M FY21 were unfavorably impacted primarily by increases to valuation allowances[109][110] - New U.S. Treasury regulations on foreign tax credit utilization, published in January 2022, are being evaluated and could significantly impact income tax expense in Q3 FY22[112] Net Income Net income for the second quarter of fiscal 2022 was $150.8 million, or $1.50 diluted EPS, a substantial increase from $19.2 million ($0.19 diluted EPS) in the prior year. For the first six months, net income was $262.1 million ($2.60 diluted EPS), up significantly from $0.3 million ($0.00 diluted EPS) in the prior year | Metric | Q2 FY22 | Q2 FY21 | 6 Months FY22 | 6 Months FY21 | | :-------------------- | :------ | :------ | :------------ | :------------ | | Net Income | $150.8 million | $19.2 million | $262.1 million | $0.3 million | | Diluted EPS | $1.50 | $0.19 | $2.60 | $0.00 | LIQUIDITY AND CAPITAL RESOURCES This section assesses the company's ability to generate and manage cash, including cash flow, debt, and available borrowing capacity, to meet its financial obligations and strategic needs Cash Flow During the first six months of fiscal 2022, the company used $263.2 million in cash for operations, a shift from generating cash in the prior year, primarily due to increased working capital needs (receivables and inventories). Financing activities provided cash, while investing activities were net positive due to the liquidation of life insurance policies - Net cash flows used for operating activities were $263.2 million in 6M FY22, compared to $207.4 million generated in 6M FY21[114] - Cash used for working capital was $631.0 million in 6M FY22, driven by increases in receivables ($558.7 million) and inventories ($359.8 million) to support sales growth[114] - Net cash flows provided by financing activities were $199.2 million in 6M FY22, including $190.4 million from the Securitization Program and $109.7 million from the Credit Facility[115] - Net cash flows provided by investing activities were $46.2 million in 6M FY22, including $67.6 million from the liquidation of Company-owned life insurance policies, partially offset by $22.1 million in capital expenditures[115] Contractual Obligations This section refers to the Annual Report on Form 10-K for detailed long-term debt and lease commitments, stating that there have been no material changes to this information outside of normal borrowings and repayments - No material changes to long-term debt and lease commitments since the Annual Report on Form 10-K for fiscal year ended July 3, 2021, outside of normal course of business[116] - The Company does not have any material non-cancellable commitments for capital expenditures or inventory purchases outside of the normal course of business[116] Financing Transactions This section provides additional information on the company's debt, including the Credit Facility and Securitization Program, confirming compliance with all covenants. It also mentions the use of factoring agreements for non-recourse sales of trade accounts receivable outside the United States - The Company was in compliance with all covenants under the Credit Facility and the Securitization Program as of January 1, 2022, and July 3, 2021[117] - The Company sells certain trade accounts receivable on a non-recourse basis to financial institutions outside the United States, accounted for as sales of receivables and presented as cash provided by operating activities[118] Liquidity The company held $167.8 million in cash and cash equivalents as of January 1, 2022, with approximately $1.49 billion in total available borrowing capacity. Management believes that future operating cash flows and available borrowing capacity will be sufficient to meet liquidity needs, despite using operating cash for working capital during periods of higher growth | Metric | January 1, 2022 (Millions) | July 3, 2021 (Millions) | | :-------------------------- | :------------------------- | :---------------------- | | Cash and cash equivalents | $167.8 | $199.7 | | Cash held outside the United States | $106.4 | $150.5 | - As of January 1, 2022, the Company had approximately $1.49 billion of total availability under its Credit Facility and Securitization Program[119] - The Company typically generates cash from operating activities during periods of weakening demand and uses operating cash flows for working capital during periods of higher growth[120] - Management believes that future operating cash flows and available borrowing capacity will be sufficient to meet its future liquidity needs[123] - As of January 1, 2022, $423.1 million remained under the $2.95 billion share repurchase authorization[124] - The Board of Directors approved a dividend of $0.24 per share in Q2 FY22, resulting in $23.7 million in payments[124] Recently Issued Accounting Pronouncements This section refers to Note 1, 'Basis of presentation and new accounting pronouncements,' for a description of recently issued accounting pronouncements - Refer to Note 1 for details on recently issued accounting pronouncements, including ASU No. 2020-04 and ASU No. 2021-01[125] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the company's strategies to mitigate market risks, primarily foreign currency exchange rates and interest rates, through economic hedges and a combination of fixed and variable rate debt. The company's exposure to these risks has not materially changed since July 3, 2021 - The Company uses economic hedges (natural hedging and derivative financial instruments like forward foreign exchange contracts) to reduce earnings and cash flow volatility from foreign currency exchange rate changes[126][127] - Interest rate risk is mitigated by maintaining a combination of fixed (approximately 80%) and variable (approximately 20%) rate debt[128] - A hypothetical 1.0% increase in interest rates would result in a $0.8 million decrease in income before income taxes for Q2 FY22[128] Item 4. Controls and Procedures Management, including the Chief Executive Officer and Chief Financial Officer, concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period. There were no material changes to the company's internal control over financial reporting during the second quarter of fiscal 2022 - The Company's disclosure controls and procedures were evaluated and concluded to be effective as of the end of the reporting period[129] - No material changes to the Company's internal control over financial reporting occurred during the second quarter of fiscal 2022[130] PART II. OTHER INFORMATION This section covers other important information not included in the financial statements, such as legal proceedings, risk factors, equity security sales, and exhibits Item 1. Legal Proceedings The company regularly assesses legal proceedings and has concluded that no particular pending matter requires specific public disclosure. Management believes accrued liabilities for environmental and other legal proceedings are appropriate, though the resolution of certain matters could be material to results of operations in a single reporting period - No particular pending legal proceeding requires specific public disclosure[130] - Management believes the Company has appropriately accrued for estimable costs of environmental and other legal proceedings[130] - Resolution of certain legal matters could possibly be material to the Company's results of operations in any single reporting period[131] Item 1A. Risk Factors This section refers readers to the comprehensive discussion of risk factors in the company's Annual Report on Form 10-K for the fiscal year ended July 3, 2021, and states that there have been no material changes to these risk factors as of January 1, 2022 - No material changes to the risk factors set forth in the Company's Annual Report on Form 10-K for the fiscal year ended July 3, 2021, as of January 1, 2022[132] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's share repurchase program, which has a cumulative authorization of $2.95 billion. During the second quarter of fiscal 2022, the company repurchased 921,467 shares for approximately $35.3 million, with $423.1 million remaining under the authorization as of January 1, 2022 - The Company's Board of Directors amended the share repurchase program, increasing the cumulative total authorized to $2.95 billion[133] | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :-------------------------- | :------------------------------- | :--------------------------- | | October 3 – October 30 | 249,905 | $37.49 | | October 31 – November 27 | 176,081 | $39.10 | | November 28 – January 1 | 495,481 | $38.52 | | Total Q2 FY22 | 921,467 | N/A | - As of January 1, 2022, approximately $423.1 million remained available under the share repurchase authorization[134] Item 6. Exhibits This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including amendments to credit agreements, stock compensation plans, certifications from the CEO and CFO, and XBRL-related documents - Exhibit 10.1: Amendment No. 2 to the Amended and Restated Credit Agreement, dated December 21, 2021[136] - Exhibit 10.2: Avnet, Inc. 2021 Stock Compensation and Incentive Plan[136] - Exhibits 31.1, 31.2, 32.1, 32.2: Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[136] - Exhibits 101.INS, 101.SCH, 101.DEF, 101.CAL, 101.LAB, 101.PRE: XBRL Taxonomy Extension Documents[136] Signature Page This is the official signature page for the Form 10-Q, confirming that the report was duly caused to be signed on behalf of AVNET, INC. by Thomas Liguori, Chief Financial Officer, on January 28, 2022 - The report was signed by Thomas Liguori, Chief Financial Officer, on January 28, 2022[139]