Avnet(AVT) - 2024 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements for Avnet, Inc, including balance sheets, statements of operations, comprehensive income, shareholders' equity, and cash flows Consolidated Balance Sheets Details the company's assets, liabilities, and shareholders' equity as of December 30, 2023, and July 1, 2023 Consolidated Balance Sheet Highlights (Thousands) | Item | Dec 30, 2023 | July 1, 2023 | | :--- | :--- | :--- | | ASSETS | | | | Total current assets | $11,138,962 | $10,750,853 | | Property, plant and equipment, net | $563,758 | $441,557 | | Goodwill | $787,007 | $780,629 | | Total assets | $12,997,174 | $12,477,159 | | LIABILITIES & EQUITY | | | | Total current liabilities | $4,765,558 | $4,249,378 | | Long-term debt | $2,753,521 | $2,988,029 | | Total liabilities | $7,986,791 | $7,725,490 | | Total shareholders' equity | $5,010,383 | $4,751,669 | - Total assets increased by $519.9 million from July 1, 2023, to December 30, 2023, primarily driven by increases in current assets, particularly inventories and receivables[9] - Total liabilities increased by $261.3 million, mainly due to a significant rise in short-term debt from $70.6 million to $696.3 million, partially offset by a decrease in long-term debt[9] Consolidated Statements of Operations Summarizes revenues, expenses, and profits for the second quarter and first six months of fiscal 2024 and 2023 Consolidated Statements of Operations Highlights (Thousands, except per share data) | Item | Q2 FY24 (Dec 30, 2023) | Q2 FY23 (Dec 31, 2022) | 6 Months FY24 (Dec 30, 2023) | 6 Months FY23 (Dec 31, 2022) | | :--- | :--- | :--- | :--- | :--- | | Sales | $6,204,914 | $6,717,521 | $12,540,562 | $13,467,654 | | Gross profit | $706,184 | $784,100 | $1,454,289 | $1,552,273 | | Operating income | $236,257 | $298,973 | $490,026 | $589,509 | | Net income | $117,931 | $243,886 | $327,199 | $428,147 | | Basic EPS | $1.31 | $2.67 | $3.60 | $4.62 | | Diluted EPS | $1.28 | $2.63 | $3.54 | $4.55 | | Cash dividends paid per common share | $0.31 | $0.29 | $0.62 | $0.58 | - Sales decreased by 7.6% in Q2 FY24 and 6.9% in the first six months of FY24 compared to the prior year periods, reflecting softening demand[11] - Net income significantly declined by 51.6% in Q2 FY24 and 23.6% in the first six months of FY24, primarily due to lower sales, gross profit, and increased interest expenses[11] Consolidated Statements of Comprehensive Income Reports net income and other comprehensive income, including foreign currency translation and pension adjustments Consolidated Statements of Comprehensive Income Highlights (Thousands) | Item | Q2 FY24 (Dec 30, 2023) | Q2 FY23 (Dec 31, 2022) | 6 Months FY24 (Dec 30, 2023) | 6 Months FY23 (Dec 31, 2022) | | :--- | :--- | :--- | :--- | :--- | | Net income | $117,931 | $243,886 | $327,199 | $428,147 | | Foreign currency translation and other | $169,163 | $243,252 | $62,127 | $41,589 | | Cross-currency swap | $(24,199) | — | $(12,391) | — | | Pension adjustments | $725 | $333 | $2,192 | $10,199 | | Total other comprehensive income, net of tax | $145,689 | $243,585 | $51,928 | $51,788 | | Total comprehensive income, net of tax | $263,620 | $487,471 | $379,127 | $479,935 | - Total comprehensive income decreased by 45.9% in Q2 FY24 and 21.0% in the first six months of FY24, primarily driven by the decline in net income and a negative impact from cross-currency swaps in FY24[16] Consolidated Statements of Shareholders' Equity Details the changes in shareholders' equity, including net income, share repurchases, and dividends Consolidated Statements of Shareholders' Equity Highlights (Thousands) | Item | Balance, July 1, 2023 | Balance, Dec 30, 2023 | | :--- | :--- | :--- | | Common Stock - Shares | 91,504 | 89,760 | | Common Stock - Amount | $91,504 | $89,760 | | Additional Paid-In Capital | $1,691,334 | $1,713,881 | | Retained Earnings | $3,378,212 | $3,564,195 | | Accumulated Other Comprehensive (Loss) Income | $(409,381) | $(357,453) | | Total Shareholders' Equity | $4,751,669 | $5,010,383 | - Total shareholders' equity increased by $258.7 million from July 1, 2023, to December 30, 2023, primarily due to net income and other comprehensive income, partially offset by share repurchases and cash dividends[19] - The Company repurchased 1.8 million shares of common stock during the first six months of fiscal 2024, reducing outstanding shares[19] Consolidated Statements of Cash Flows Summarizes cash inflows and outflows from operating, investing, and financing activities Consolidated Statements of Cash Flows Highlights (Thousands) | Item | 6 Months FY24 (Dec 30, 2023) | 6 Months FY23 (Dec 31, 2022) | | :--- | :--- | :--- | | Net cash flows used for operating activities | $(83,575) | $(966,501) | | Net cash flows provided by financing activities | $222,599 | $1,256,523 | | Net cash flows used for investing activities | $(157,715) | $(127,715) | | Cash and cash equivalents at end of period | $272,850 | $324,778 | - Cash used for operating activities significantly decreased from $966.5 million in the first six months of FY23 to $83.6 million in FY24, primarily due to changes in working capital, including a decrease in receivables and a smaller increase in inventories[22][106] - Net cash provided by financing activities decreased substantially from $1.26 billion in FY23 to $222.6 million in FY24, mainly due to lower net borrowings under credit facilities and reduced common stock repurchases[22][107] - Cash used for investing activities increased by $30.0 million, driven by higher purchases of property, plant, and equipment, primarily for distribution center expansions in EMEA[22][107] Notes to Consolidated Financial Statements Provides detailed explanations of accounting policies and specific financial items presented in the consolidated statements 1. Basis of presentation and new accounting pronouncements Outlines the basis for financial statement preparation and the impact of new accounting standards - The Company adopted ASU No 2022-04 (Supplier Finance Programs) in Q1 FY24, which did not materially impact financial statements, except for roll-forward information effective in FY25[25] - The Company is evaluating the impact of ASU No 2023-07 (Segment reporting) and ASU No 2023-09 (Income Taxes), effective in FY25 and FY26 respectively, with early adoption permitted[26][27] 2. Working capital Details the components of working capital, including receivables, credit loss allowances, and inventories Receivables and Allowance for Credit Losses (Thousands) | Item | Dec 30, 2023 | July 1, 2023 | | :--- | :--- | :--- | | Receivables | $4,624,549 | $4,876,631 | | Allowance for Credit Losses | $(115,807) | $(112,843) | Allowance for Credit Losses Activity (Thousands) | Item | 6 Months FY24 (Dec 30, 2023) | 6 Months FY23 (Dec 31, 2022) | | :--- | :--- | :--- | | Balance at beginning of period | $112,843 | $113,902 | | Credit Loss Provisions | $6,564 | $4,803 | | Receivables Write Offs | $(3,885) | $(12,476) | | Balance at end of period | $115,807 | $106,505 | - Inventories primarily consist of electronic components, with approximately 10% held for supply chain service engagements as of December 30, 2023[32] 3. Goodwill Reports the carrying amount of goodwill by operating segment and explains changes during the period Goodwill by Segment (Thousands) | Segment | July 1, 2023 | Dec 30, 2023 | | :--- | :--- | :--- | | Electronic Components | $296,829 | $298,874 | | Farnell | $483,800 | $488,133 | | Total Goodwill | $780,629 | $787,007 | - Goodwill increased by $6.378 million during the first six months of fiscal 2024, primarily due to foreign currency translation effects[35] 4. Debt Provides a detailed breakdown of the company's short-term and long-term debt obligations Short-term Debt (Thousands) | Item | Dec 30, 2023 Carrying Balance | July 1, 2023 Carrying Balance | | :--- | :--- | :--- | | Accounts receivable securitization program | $614,400 | $0 | | Other short-term debt | $81,929 | $70,636 | | Total Short-term debt | $696,329 | $70,636 | Long-term Debt (Thousands) | Item | Dec 30, 2023 Carrying Balance | July 1, 2023 Carrying Balance | | :--- | :--- | :--- | | Credit Facility | $1,091,696 | $796,552 | | Public notes due April 2026 | $550,000 | $550,000 | | Public notes due May 2031 | $300,000 | $300,000 | | Public notes due June 2032 | $300,000 | $300,000 | | Public notes due March 2028 | $500,000 | $500,000 | | Total Long-term debt | $2,753,521 | $2,988,029 | - Total debt (carrying value) increased from $3.06 billion at July 1, 2023, to $3.45 billion at December 30, 2023, with fair value approximating carrying value for most debt due to variable interest rates[41] - The Company was in compliance with all covenants under its $1.50 billion revolving credit facility and securitization program as of December 30, 2023[40][109] 5. Leases Discloses information about the company's operating leases, including costs and future payment obligations Total Lease Cost (Thousands) | Item | Q2 FY24 (Dec 30, 2023) | Q2 FY23 (Dec 31, 2022) | 6 Months FY24 (Dec 30, 2023) | 6 Months FY23 (Dec 31, 2022) | | :--- | :--- | :--- | :--- | :--- | | Operating lease cost | $14,166 | $16,917 | $29,705 | $33,482 | | Variable lease cost | $8,677 | $5,715 | $15,844 | $12,028 | | Total lease cost | $22,843 | $22,632 | $45,549 | $45,510 | Future Minimum Operating Lease Payments (Thousands) | Fiscal Year | Amount | | :--- | :--- | | Remainder of fiscal 2024 | $33,028 | | 2025 | $57,085 | | 2026 | $46,490 | | 2027 | $28,901 | | 2028 | $22,718 | | Thereafter | $101,473 | | Total future operating lease payments | $289,695 | | Total operating lease liabilities | $246,945 | - The weighted-average remaining lease term for operating leases was 7.8 years as of December 30, 2023, with a weighted-average discount rate of 3.8%[46] 6. Derivative financial instruments Describes the use of derivative instruments to manage foreign currency and investment risks - The Company uses economic hedges, primarily forward foreign exchange contracts (typically less than 60 days maturity), to mitigate foreign currency exposure from international transactions[47][48] - In fiscal 2023, the Company entered into a $500.0 million cross-currency swap designated as a net investment hedge of its European operations, with changes in fair value recognized in accumulated other comprehensive loss[49] Derivative Financial Instruments Fair Values (Thousands) | Item | Dec 30, 2023 | July 1, 2023 | | :--- | :--- | :--- | | Economic hedges (Prepaid and other current assets) | $58,127 | $69,104 | | Economic hedges (Accrued expenses and other) | $59,424 | $68,594 | | Cross-currency swap (Other liabilities) | $35,240 | $22,849 | 7. Commitments and contingencies Discloses legal proceedings, investigations, and other potential liabilities - 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 it could be material to results of operations in a single reporting period[53][54] - As of December 30, 2023, and July 1, 2023, the Company had estimated liabilities of $22.7 million for compliance-related matters[55] - The Company recorded a gain on legal settlements and other of $86.5 million in the first six months of fiscal 2024, compared to $61.7 million in the prior year, from capacitor manufacturer claims[55][101] 8. Income taxes Details the components of income tax expense and the effective tax rates for the reporting periods Effective Tax Rates | Period | Effective Tax Rate | | :--- | :--- | | Q2 FY24 | 23.2% | | Q2 FY23 | 19.5% | | 6 Months FY24 | 23.7% | | 6 Months FY23 | 22.0% | - The effective tax rate in Q2 FY24 was unfavorably impacted by increases to unrecognized tax benefit reserves and U.S state taxes, partially offset by income mix in lower tax foreign jurisdictions[56] - For the first six months of FY24, the effective tax rate was unfavorably impacted by increases to unrecognized tax benefit reserves, U.S state taxes, and the mix of income in higher tax foreign jurisdictions[57] 9. Pension plan Provides information on the company's defined benefit pension plan, including costs and contributions Net Periodic Pension Benefit (Thousands) | Item | Q2 FY24 (Dec 30, 2023) | Q2 FY23 (Dec 31, 2022) | 6 Months FY24 (Dec 30, 2023) | 6 Months FY23 (Dec 31, 2022) | | :--- | :--- | :--- | :--- | :--- | | Service cost | $2,563 | $3,004 | $5,126 | $6,008 | | Interest cost | $6,144 | $6,683 | $12,289 | $13,365 | | Expected return on plan assets | $(9,985) | $(12,215) | $(19,970) | $(24,430) | | Total net periodic pension benefit | $(1,222) | $(1,909) | $(2,442) | $(3,820) | - The Company made $4.0 million in contributions to its noncontributory defined benefit pension plan during the first six months of fiscal 2024 and expects to make an additional $4.0 million in contributions for the remainder of fiscal 2024[61] 10. Shareholders' equity Discloses details on share repurchase programs and dividend payments - During Q2 FY24, the Company repurchased 1.3 million shares for $59.9 million, with $232.5 million remaining under the share repurchase authorization as of December 30, 2023[62] - A dividend of $0.31 per common share was approved in November 2023, resulting in $27.8 million in payments during December 2023[63] 11. Earnings per share Presents the calculation of basic and diluted earnings per share Earnings Per Share (Thousands, except per share data) | Item | Q2 FY24 (Dec 30, 2023) | Q2 FY23 (Dec 31, 2022) | 6 Months FY24 (Dec 30, 2023) | 6 Months FY23 (Dec 31, 2022) | | :--- | :--- | :--- | :--- | :--- | | Net income | $117,931 | $243,886 | $327,199 | $428,147 | | Weighted average common shares for basic EPS | 90,253 | 91,192 | 90,874 | 92,621 | | Basic EPS | $1.31 | $2.67 | $3.60 | $4.62 | | Diluted EPS | $1.28 | $2.63 | $3.54 | $4.55 | - Diluted EPS decreased by 51.3% in Q2 FY24 and 22.2% in the first six months of FY24 compared to the prior year periods, reflecting the decline in net income[66] 12. Additional cash flow information Provides supplemental details on cash flow items, such as interest and taxes paid Supplemental Cash Flow Information (Thousands) | Item | 6 Months FY24 (Dec 30, 2023) | 6 Months FY23 (Dec 31, 2022) | | :--- | :--- | :--- | | Capital expenditures incurred but not paid | $27,049 | $11,086 | | Interest paid | $175,701 | $110,167 | | Income tax payments, net | $128,843 | $110,401 | - Cash equivalents, primarily investment grade money market funds and overnight time deposits, increased from $3.7 million at July 1, 2023, to $16.7 million at December 30, 2023[68] 13. Segment information Reports financial results by operating group and geographic area Sales by Operating Group (Thousands) | Operating Group | Q2 FY24 (Dec 30, 2023) | Q2 FY23 (Dec 31, 2022) | 6 Months FY24 (Dec 30, 2023) | 6 Months FY23 (Dec 31, 2022) | | :--- | :--- | :--- | :--- | :--- | | Electronic Components (EC) | $5,812,118 | $6,309,494 | $11,726,523 | $12,633,717 | | Farnell | $392,796 | $408,027 | $814,039 | $833,937 | | Total Sales | $6,204,914 | $6,717,521 | $12,540,562 | $13,467,654 | Operating Income by Operating Group (Thousands) | Operating Group | Q2 FY24 (Dec 30, 2023) | Q2 FY23 (Dec 31, 2022) | 6 Months FY24 (Dec 30, 2023) | 6 Months FY23 (Dec 31, 2022) | | :--- | :--- | :--- | :--- | :--- | | Electronic Components (EC) | $247,899 | $296,709 | $520,650 | $563,962 | | Farnell | $15,710 | $36,905 | $33,382 | $88,516 | | Total Operating Income | $236,257 | $298,973 | $490,026 | $589,509 | Sales by Geographic Area (Thousands) | Region | Q2 FY24 (Dec 30, 2023) | Q2 FY23 (Dec 31, 2022) | 6 Months FY24 (Dec 30, 2023) | 6 Months FY23 (Dec 31, 2022) | | :--- | :--- | :--- | :--- | :--- | | Americas | $1,588,508 | $1,681,177 | $3,162,029 | $3,360,079 | | EMEA | $2,113,550 | $2,255,878 | $4,421,601 | $4,385,418 | | Asia | $2,502,856 | $2,780,466 | $4,956,932 | $5,722,157 | | Total Sales | $6,204,914 | $6,717,521 | $12,540,562 | $13,467,654 | 14. Restructuring expenses Details the costs and liabilities associated with the company's restructuring activities Restructuring Liabilities Activity (Thousands) | Item | Severance | Exit Facility Costs | Total | | :--- | :--- | :--- | :--- | | Balance at July 1, 2023 | $15,507 | $504 | $16,011 | | Fiscal 2024 restructuring expenses | $2,790 | — | $2,790 | | Cash payments | $(1,928) | — | $(1,928) | | Balance at December 30, 2023 | $16,484 | $506 | $16,990 | - Restructuring expenses in fiscal 2024 primarily relate to severance costs for over 50 employees in the Farnell operating group and the planned closure of a Farnell distribution center[72][93] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Avnet's financial performance for Q2 FY24, highlighting decreased sales and net income due to softening demand, while detailing liquidity and capital resources Forward-Looking Statements Outlines the risks and uncertainties associated with forward-looking statements contained within the report - The report contains forward-looking statements subject to numerous assumptions, risks, and uncertainties, including geopolitical events, competitive pressures, industry down-cycles, supplier relationships, and international operational risks[75] - The Company assumes no obligation to update any forward-looking statement to reflect events or circumstances occurring after the statement's date, except as required by law[76] Non-GAAP Financial Measures Explains the use of non-GAAP measures like adjusted operating income and provides reconciliations to GAAP figures - The Company uses non-GAAP financial measures, such as 'adjusted operating income,' which excludes restructuring, integration, other expenses, and amortization of acquired intangible assets, to provide additional insights into operating performance[78][80] Reconciliation of Operating Income to Adjusted Operating Income (Thousands) | Item | Q2 FY24 (Dec 30, 2023) | Q2 FY23 (Dec 31, 2022) | 6 Months FY24 (Dec 30, 2023) | 6 Months FY23 (Dec 31, 2022) | | :--- | :--- | :--- | :--- | :--- | | Operating income | $236,257 | $298,973 | $490,026 | $589,509 | | Restructuring, integration and other expenses | $5,235 | — | $12,286 | — | | Amortization of acquired intangible assets | $712 | $1,541 | $1,590 | $4,300 | | Adjusted operating income | $242,204 | $300,514 | $503,902 | $593,809 | OVERVIEW Provides a summary of the company's organization and an executive summary of recent financial performance Organization Describes the company's business as a global electronic component technology distributor and solutions provider - Avnet, Inc is a global electronic component technology distributor and solutions provider operating for over a century, serving customers in more than 140 countries[81] - The Company operates through two primary groups: Electronic Components (EC), distributing semiconductors and other components, and Farnell, distributing electronic components and industrial products via multi-channel sales[82] Executive Summary Summarizes key financial results for the second quarter of fiscal 2024, noting declines in sales and profitability - Consolidated sales decreased by 7.6% to $6.20 billion in Q2 FY24, primarily due to softening demand for electronic components and customer inventory levels, a trend expected to continue through 2024[83] - Gross profit decreased by $77.9 million (9.9%) to $706.2 million in Q2 FY24, mainly due to lower sales and unfavorable changes in sales mix[83] - Operating income fell by 21.0% to $236.3 million in Q2 FY24, with the operating income margin decreasing from 4.5% to 3.8%, driven by lower sales and gross margins[84] Sales Analyzes sales performance by operating group and geographic region, including constant currency comparisons Sales Growth Rates (Year-over-Year % Change) | Category | Q2 FY24 | Q2 FY24 (Constant Currency) | 6 Months FY24 | 6 Months FY24 (Constant Currency) | | :--- | :--- | :--- | :--- | :--- | | Avnet | (7.6)% | (8.7)% | (6.9)% | (8.3)% | | Americas | (5.5)% | (5.5)% | (5.9)% | (5.9)% | | EMEA | (6.3)% | (10.2)% | 0.8% | (4.3)% | | Asia | (10.0)% | (9.4)% | (13.4)% | (12.7)% | | EC | (7.9)% | (8.9)% | (7.2)% | (8.5)% | | Farnell | (3.7)% | (6.0)% | (2.4)% | (4.9)% | - EC sales decreased by 7.9% (8.9% in constant currency) in Q2 FY24, with all three regions contributing to the decline[88] - Farnell sales decreased by 3.7% (6.0% in constant currency) in Q2 FY24, primarily due to reduced demand for on-the-board electronic components and competitive pricing pressures[88] Gross Profit Examines the changes in gross profit and gross profit margin, attributing declines to lower sales and product mix Gross Profit and Margin | Item | Q2 FY24 (Dec 30, 2023) | Q2 FY23 (Dec 31, 2022) | 6 Months FY24 (Dec 30, 2023) | 6 Months FY23 (Dec 31, 2022) | | :--- | :--- | :--- | :--- | :--- | | Gross profit | $706.2 million | $784.1 million | $1.45 billion | $1.55 billion | | Gross profit margin | 11.4% | 11.7% | 11.6% | 11.5% | - Gross profit margin decreased by 29 basis points in Q2 FY24, primarily due to decreased sales and unfavorable shifts in product mix[89] - Farnell's gross profit margin declined due to the unwinding of component shortage pricing premiums, a lower sales mix of on-the-board electronic components, and competitive pricing pressures[89] Selling, General and Administrative Expenses Analyzes SG&A expenses, noting a decrease in absolute terms but an increase as a percentage of sales and gross profit SG&A Expenses (Millions) | Item | Q2 FY24 (Dec 30, 2023) | Q2 FY23 (Dec 31, 2022) | 6 Months FY24 (Dec 30, 2023) | 6 Months FY23 (Dec 31, 2022) | | :--- | :--- | :--- | :--- | :--- | | SG&A expenses | $464.7 | $485.1 | $952.0 | $962.8 | | SG&A as % of sales | 7.5% | 7.2% | 7.6% | 7.1% | | SG&A as % of gross profit | 65.8% | 61.9% | 65.5% | 62.0% | - SG&A expenses decreased by $20.4 million (4.2%) in Q2 FY24, primarily due to declines in sales, partially offset by foreign currency translation impacts[91] - SG&A expenses as a percentage of both sales and gross profit increased year-over-year, mainly due to the decrease in sales and gross profit[91][92] Restructuring, Integration and Other Expenses Details current and expected restructuring expenses, primarily related to the Farnell operating group Restructuring, Integration and Other Expenses (Millions) | Period | Amount | | :--- | :--- | | Q2 FY24 | $5.2 | | 6 Months FY24 | $12.3 | | After-tax impact (Q2 FY24) | $4.0 | | Diluted EPS impact (Q2 FY24) | $0.04 | | After-tax impact (6 Months FY24) | $9.3 | | Diluted EPS impact (6 Months FY24) | $0.09 | - The Company expects to incur $15.0 million to $25.0 million in additional restructuring, integration, and other expenses in the second half of fiscal 2024, primarily related to Farnell[94] - Expected annual operating expense reductions from Farnell restructuring actions are estimated to be $50.0 million to $70.0 million[94] Operating Income Discusses the decline in operating income and margins for both the consolidated company and its operating segments Operating Income and Margin | Item | Q2 FY24 (Dec 30, 2023) | Q2 FY23 (Dec 31, 2022) | 6 Months FY24 (Dec 30, 2023) | 6 Months FY23 (Dec 31, 2022) | | :--- | :--- | :--- | :--- | :--- | | Operating income | $236.3 million | $299.0 million | $490.0 million | $589.5 million | | Operating income margin | 3.8% | 4.5% | 3.9% | 4.4% | | Adjusted operating income | $242.2 million | $300.5 million | $503.9 million | $593.8 million | - Operating income decreased by 21.0% in Q2 FY24 and 16.9% in the first six months of FY24, primarily due to lower sales and gross profit margins, partially offset by favorable foreign currency exchange rates[95][97] - EC operating income margin decreased by 43 basis points to 4.3%, and Farnell operating income margin decreased by 504 basis points to 4.0% in Q2 FY24, both driven by lower sales and gross profit margins[96] Interest and Other Financing Expenses, Net and Other (Expense) Income, Net Explains the increase in interest expenses due to higher borrowings and rates, and other expenses from currency losses Interest and Other Financing Expenses, Net (Millions) | Period | Amount | | :--- | :--- | | Q2 FY24 | $74.3 | | Q2 FY23 | $59.0 | | 6 Months FY24 | $145.1 | | 6 Months FY23 | $104.1 | - Interest and other financing expenses increased by $15.3 million in Q2 FY24 and $41.0 million in the first six months of FY24, primarily due to higher outstanding borrowings and increased average borrowing rates[99] - Other expenses increased by $9.9 million in Q2 FY24, primarily due to foreign currency translation losses[100] Gain on Legal Settlements and other Reports gains from legal settlements with capacitor manufacturers Gain on Legal Settlements and Other (Millions) | Period | Amount | | :--- | :--- | | 6 Months FY24 | $86.5 | | 6 Months FY23 | $61.7 | - The Company recorded a gain of $86.5 million in the first six months of fiscal 2024 from legal settlements against capacitor manufacturers, an increase from $61.7 million in the prior year[101] Income Tax Details the effective tax rates and factors influencing them, such as unrecognized tax benefits and jurisdictional income mix Effective Tax Rates | Period | Effective Tax Rate | | :--- | :--- | | Q2 FY24 | 23.2% | | Q2 FY23 | 19.5% | | 6 Months FY24 | 23.7% | | 6 Months FY23 | 22.0% | - The effective tax rate for Q2 FY24 was unfavorably impacted by increases to unrecognized tax benefit reserves and U.S state taxes, partially offset by the mix of income in lower tax foreign jurisdictions[102] Net Income Summarizes the significant year-over-year decrease in net income and diluted earnings per share Net Income (Millions) | Period | Net Income | | :--- | :--- | | Q2 FY24 | $117.9 | | Q2 FY23 | $243.9 | | 6 Months FY24 | $327.2 | | 6 Months FY23 | $428.1 | - Net income for Q2 FY24 decreased to $117.9 million ($1.28 diluted EPS) from $243.9 million ($2.63 diluted EPS) in Q2 FY23, reflecting the overall decline in financial performance[104] LIQUIDITY AND CAPITAL RESOURCES Details the company's cash flows, contractual obligations, financing activities, and overall liquidity position Cash Flow from Operating Activities Analyzes the significant improvement in operating cash flow, driven by better working capital management - Cash used for operating activities decreased significantly from $966.5 million in the first six months of FY23 to $83.6 million in FY24[106] - The improvement in operating cash flow was driven by a $539.4 million cash outflow for working capital in FY24, compared to $1.48 billion in FY23, primarily due to a decrease in receivables and a smaller increase in inventories[106] Cash Flow from Financing Activities Details cash flows from financing, including borrowings, dividends, and share repurchases - Net cash provided by financing activities was $222.7 million in the first six months of FY24, including $272.7 million from the Credit Facility and $58.6 million from the Securitization Program[107] - The Company paid $56.1 million in common stock dividends and repurchased $86.0 million of common stock during the first six months of FY24[107] Cash Flow from Investing Activities Reports cash used for investing, highlighting increased capital expenditures for distribution center expansions - Cash used for investing activities increased to $158.1 million in the first six months of FY24, up from $111.4 million in FY23, primarily due to increased capital expenditures for distribution center expansions in EMEA[107] Contractual Obligations Confirms no material changes to long-term debt and lease commitments outside the normal course of business - There are no material changes to long-term debt and lease commitments outside of normal borrowings, repayments, and operating lease payments since the fiscal year ended July 1, 2023[108] - The Company has no material non-cancellable commitments for capital expenditures or inventory purchases beyond the normal course of business[108] Financing Transactions Discusses compliance with debt covenants and the use of various credit facilities and receivable sales programs - The Company was in compliance with all covenants under its Credit Facility and Securitization Program as of December 30, 2023[109] - Outstanding borrowings under various lines of credit and bank debt for short-term working capital and foreign operations were $105.1 million at the end of Q2 FY24[110] - The Company sells certain trade accounts receivable on a non-recourse basis to financial institutions, with proceeds classified as cash provided by operating activities[110] Liquidity Assesses the company's liquidity position, including cash balances and available borrowing capacity Cash and Cash Equivalents (Millions) | Period | Total | Held outside U.S. | | :--- | :--- | :--- | | Dec 30, 2023 | $272.9 | $178.7 | | July 1, 2023 | $288.2 | $194.5 | - The Company had a combined total borrowing capacity of $2.20 billion under the Credit Facility and Securitization Program, with approximately $493.0 million of committed availability as of December 30, 2023[113] - Management believes that future operating cash flows and available borrowing capacity will be sufficient to meet liquidity needs, with access to additional capital markets if necessary[115] Recently Issued Accounting Pronouncements Refers to Note 1 for details on new accounting standards the company is currently evaluating - This section refers to Note 1 for details on recently issued accounting pronouncements, including ASU No 2023-07 (Segment reporting) and ASU No 2023-09 (Income Taxes), which the Company is currently evaluating[116][26][27] Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company manages market risks from interest rates and foreign currency exchange rates through financial arrangements and a mix of fixed and variable rate debt - The Company uses financial arrangements and economic hedges to reduce earnings and cash flow volatility from interest rate and foreign currency exchange rate changes[117] - As of December 30, 2023, approximately 48% of the Company's debt bears interest at a fixed rate and 52% at variable rates[119] - A hypothetical 1.0% increase in interest rates would result in a $4.5 million decrease in income before income taxes for Q2 FY24[119] Item 4. Controls and Procedures Management concluded that the Company's disclosure controls and procedures were effective as of December 30, 2023, with no material changes to internal controls - The CEO and CFO evaluated and concluded that the Company's disclosure controls and procedures were effective as of December 30, 2023[120] - There were no material changes to the Company's internal control over financial reporting during Q2 FY24[121] PART II. OTHER INFORMATION Item 1. Legal Proceedings The Company is subject to various legal proceedings that are not expected to materially affect its financial position, though they could impact results in a single period - Management believes no particular pending legal proceeding requires specific public disclosure[122] - The Company believes the resolution of current legal matters will not have a material adverse effect on financial position or liquidity, but could be material to results of operations in any single reporting period[123] Item 1A. Risk Factors As of December 30, 2023, there have been no material changes to the risk factors previously disclosed in the Company's Annual Report on Form 10-K - 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 1, 2023, were identified as of December 30, 2023[124] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the Company's common stock repurchases during the second quarter of fiscal 2024 under its publicly announced share repurchase program Monthly Common Stock Purchases (Q2 FY24) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Approximate Dollar Value of Shares That May Yet Be Purchased | | :--- | :--- | :--- | :--- | | Oct 1 – Oct 28 | 558,000 | $47.43 | $265,005,000 | | Oct 29 – Nov 25 | 544,900 | $46.62 | $239,603,000 | | Nov 26 – Dec 30 | 151,514 | $46.99 | $232,484,000 | - The Company's Board of Directors has approved a repurchase plan of up to an aggregate of $600 million of common stock[125] Item 6. Exhibits This section lists the exhibits filed with the Quarterly Report, including CEO and CFO certifications and XBRL taxonomy documents - Includes certifications of the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[127][128][129][130] - XBRL (eXtensible Business Reporting Language) documents, including the instance document, schema, definition, calculation, and label linkbase documents, are filed or furnished[131][132][133][134] Signature Page The report is signed on behalf of Avnet, Inc by its Chief Financial Officer on February 2, 2024, affirming compliance with the Securities Exchange Act of 1934 - The report was signed by Kenneth A Jacobson, Chief Financial Officer of AVNET, INC, on February 2, 2024[137]