AVT US Equity☆

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

For a description of the Company’s critical accounting policies and an understanding of Avnet and the significant factors that influenced the Company’s performance during the past three fiscal years, the following discussion should be read in conjunction with the description of the business appearing in Item 1 of this Report and the consolidated financial statements, including the related notes and schedule, and other information appearing in Item 8 of this Report. Discussions of fiscal 2022 items and year-to-year comparisons between fiscal years 2023 and 2022 are not included in this Form 10-K and can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended July 1, 2023. The Company operates on a “52/53 week” fiscal year. Fiscal years 2024, 2023 and 2022 each contained 52 weeks.

The discussion of the Company’s results of operations includes references to the impact of foreign currency translation. When the U.S. Dollar strengthens and the stronger exchange rates are used to translate the results of operations of Avnet’s subsidiaries denominated in foreign currencies, the result is a decrease in U.S. Dollars of reported results. Conversely, when the U.S. Dollar weakens, the weaker exchange rates result in an increase in U.S. Dollars of reported results. In the discussion that follows, results excluding this impact, primarily for subsidiaries in EMEA and Asia, are referred to as “constant currency.”

In addition to disclosing financial results that are determined in accordance with generally accepted accounting principles in the U.S. (“GAAP”), the Company also discloses certain non-GAAP financial information, including:

The following table provides a reconciliation of operating income to adjusted operating income:

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​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Years Ended

​ June 29, July 1, July 2,

​ ​ (Thousands)

Restructuring, integration and other expenses ​ 52,550 ​ 28,038 ​ 5,272

Russian-Ukraine conflict related expenses ​ ​ — ​ ​ — ​ ​ 26,261

Amortization of acquired intangible assets ​ 3,130 ​ 6,053 ​ 15,038

Management believes that providing this additional information is useful to financial statement users to better assess and understand operating performance, especially when comparing results with prior periods or forecasting performance for future periods, primarily because management typically monitors the business both including and excluding these adjustments to GAAP results. Management also uses these non-GAAP measures to establish operational

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goals and, in many cases, for measuring performance for compensation purposes. However, any analysis of results on a non-GAAP basis should be used as a complement to, and in conjunction with, results presented in accordance with GAAP.

Industry outlook

The global electronic components market has a history of cyclical downturns followed by periods of increased demand. Beginning in the second half of calendar year 2023, the industry began to experience a downturn marked by a decrease in sales due to a combination of elevated customer inventory levels and lower underlying demand for electronic components. As a result, the Company has seen elevated inventory levels and decreased sales, resulting in lower operating income. The duration of the current downturn is uncertain. The Company expects sales in the first quarter of fiscal 2025 to be flat to 5% lower than fourth quarter of fiscal 2024 sales, which will negatively impact operating income and diluted earnings per share.

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Results of Operations

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ Years Ended

​ ​ ​ June 29, 2024 ​ July 1, 2023 ​ Variance ​ Variance %

​ ​ ​ ($ in millions, unless otherwise stated) ​ ​ ​

Restructuring, integration, and other expenses ​ ​ 53 ​ ​ 28 ​ ​ 25 ​ ​ 87.4 %

Adjusted operating income ​ ​ 900 ​ ​ 1,221 ​ ​ (321) ​ ​ (26.3) %

Other (expense) income, net ​ ​ (16) ​ ​ 10 ​ ​ (26) ​ ​ (258.8) %

Gain on legal settlements and other ​ ​ 86 ​ ​ 37 ​ ​ 49 ​ ​ 133.5 %

Income tax expense ​ ​ 134 ​ ​ 212 ​ ​ (78) ​ ​ (37.0) %

Diluted earnings per share ​ ​ 5.43 ​ ​ 8.26 ​ ​ (2.83) ​ ​ (34.3) %

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Other Metrics ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Gross profit margin ​ ​ 11.6 % ​ 12.0 % ​ (35) bps ​ (0.4) %

Operating income margin ​ ​ 3.6 % ​ 4.5 % ​ (92) bps ​ (0.9) %

Adjusted operating income margin ​ ​ 3.8 % ​ 4.6 % ​ (81) bps ​ (0.8) %

Effective tax rate ​ ​ 21.1 % ​ 21.6 % ​ (45) bps ​ (0.5) %

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Sales

Analysis of Sales: By Operating Group and Geography

The table below provides sales decline rates for fiscal 2024 as compared to fiscal 2023 as reported and on a constant currency basis by geographic region and operating group.

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ Sales

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year-Year %

​ ​ Years Ended ​ Sales ​ Change in

​ June 29, % of ​ July 1, % of ​ Year-Year % ​ Constant

​ ​ 2024 Total 2023 ​ Total Change ​ Currency

​ ​ (Dollars in millions) ​ ​ ​ ​ ​ ​

Sales by Operating Group: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Sales by Geographic Region: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total Avnet ​ $ 23,757.1 ​ ​ ​ ​ $ 26,536.9 ​ ​ ​ ​ ​ ​ ​ ​ ​

​

​

Avnet’s sales for fiscal 2024 were $23.76 billion, a decrease of $2.78 billion, or 10.5%, from fiscal 2023 sales of $26.54 billion. Sales in constant currency decreased 10.9% year over year, reflecting a reduction in sales volume primarily due to the on-going market downturn occurring across the electronic components industry and, to a lesser extent, an unfavorable product mix of lower priced electronic components.

EC sales in fiscal 2024 were $22.16 billion, representing a 10.7% decrease over fiscal 2023 sales of $24.80 billion. EC sales decreased 11.0% year over year in constant currency. The decrease in EC sales is primarily due to sales volume decreases across all three regions due to the market downturn in the electronic components industry and, to a lesser extent, an unfavorable product mix of lower-priced electronic components. Average selling prices of electronic components at EC remained relatively stable between fiscal 2024 and fiscal 2023.

Farnell sales in fiscal 2024 were $1.60 billion, a decrease of $137.2 million or 7.9%, from fiscal 2023 sales of $1.73 billion. The year-over-year decrease in sales was primarily a result of lower demand, including lower demand for on-the-board electronic components, partially offset by increases in availability and demand for single-board computers.

Gross Profit

The Company’s gross profit is primarily affected by sales volume and geographic sales mix. Gross profit in fiscal 2024 was $2.77 billion, a decrease of $415.7 million, or 13.1%, from fiscal 2023 gross profit of $3.18 billion primarily due to lower sales volumes, as described above. Gross profit margin decreased to 11.6% in fiscal 2024 or 35 basis points from fiscal 2023 gross profit margin of 12.0%. The decrease in gross profit margin is primarily due to an increase in product mix to lower margin electronic components. Sales in the higher margin western regions represented approximately 60% of sales in both fiscal 2024 and fiscal 2023.

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EC gross profit margin decreased year over year largely due to an increase in product mix to lower margin electronic components. Average selling prices of electronic components at EC remained relatively stable between fiscal 2024 and fiscal 2023.

Farnell gross profit margin decreased year over year, primarily due to lower sales of higher margin on-the-board electronic components and the unwinding of component shortage pricing premiums for on-the-board electronic components in fiscal 2024.

Selling, General and Administrative Expenses

Selling, general and administrative expenses (“SG&A expenses”) in fiscal 2024 were $1.87 billion, a decrease of $97.8 million, or 5.0%, from fiscal 2023. The year-over-year decrease in SG&A expenses was primarily due to decreases in variable operating expenses associated with the decrease in sales volumes discussed above and to a lesser extent the impact of restructuring actions, partially offset by increases in costs due to inflation and the impact of changes in foreign currency translation rates.

Metrics that management monitors with respect to its operating expenses are SG&A expenses as a percentage of sales and as a percentage of gross profit. In fiscal 2024, SG&A expenses as a percentage of sales were 7.9% and as a percentage of gross profit were 67.6%, as compared with 7.4% and 61.8%, respectively, in fiscal 2023. The increases in SG&A expenses as a percentage of sales and gross profit resulted primarily from the decreases in sales and gross profit without a proportional reduction in SG&A expenses, resulting in lower operating leverage.

Restructuring, Integration and Other Expenses

During fiscal 2024, the Company implemented a plan to reduce SG&A expenses at Farnell and deliver approximately $60 million in annual expense reductions. Additionally, the Company began expense reduction initiatives within EC and for corporate expenses, which are expected to yield additional annual cost savings of approximately $50 million when completed. As such, the Company recorded $39.5 million for restructuring costs in fiscal 2024 primarily related to severance and other employee-related expenses associated with the reduction, or planned reduction, of approximately 600 employees across the Company. The Company also incurred integration, and other expenses of $13.1 million. Integration expenses of $13.1 million related to the Company’s consolidation of several smaller warehouses predominantly related to Farnell, and other expenses of $5.5 million related to certain costs associated with potential M&A activity that did not lead to a transaction. Additionally, the Company recorded a benefit of $5.5 million, primarily related to environmental remediation reserves after entering into a favorable consent decree with a state agency for a certain environmental cleanup matter. The after-tax impact of restructuring, integration, and other expenses were $39.6 million and $0.43 per share on a diluted basis.

During fiscal 2023 the Company recorded restructuring, integration, and other expenses of $28.0 million, which includes $17.4 million for restructuring costs, consisting of $16.1 million for severance, $0.5 million for facility exit costs, and $0.8 million for asset impairments.

See Note 17, “Restructuring expenses” to the Company’s consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for additional information related to restructuring expenses.

Operating Income

Operating income for fiscal 2024 was $844.4 million, a decrease of $342.4 million or 28.9%, from fiscal 2023 operating income of $1.19 billion. Operating income margin was 3.6% in fiscal 2024 compared to 4.5% in fiscal 2023.

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Adjusted operating income for fiscal 2024 was $900.0 million, a decrease of $320.8 million or 26.3%, from fiscal 2023 adjusted operating income of $1.22 billion. Adjusted operating income margin was 3.8% in fiscal 2024 compared to 4.6% in fiscal 2023. The decreases in operating income and operating income margin are primarily due to the decrease in gross profit primarily from lower sales without a proportionate decrease in SG&A expenses, as discussed above. Additionally, the Company incurred higher restructuring, integration, and other expenses during fiscal 2024 compared to such expenses in fiscal 2023.

EC operating income decreased 19.7% to $947.6 million, and EC operating income margin decreased 48 basis points to 4.3% in fiscal 2024, with all three regions contributing to the decrease. Farnell operating income decreased 60.8% to $64.8 million in fiscal 2024 and Farnell operating income margin decreased 548 basis points to 4.1% in fiscal 2024. The decreases in operating income and operating income margin in both operating groups are due to the decrease in gross profit primarily from lower sales and gross margin without a proportionate decrease in SG&A expenses.

Interest and Other Financing Expenses, Netand Other (Expense) Income, Net

Interest and other financing expenses for fiscal 2024 was $282.9 million, an increase of $32.0 million, or 12.8%, compared with interest and other financing expenses of $250.9 million in fiscal 2023. The increase in interest and other financing expenses in fiscal 2024 compared to fiscal 2023 is a result of higher outstanding borrowings and increases in average borrowing rates.

The Company had other expenses of $15.7 million in fiscal 2024, compared to other income of $9.9 million in fiscal 2023. The increase in other expenses is primarily due to foreign currency translation losses.

Gain on Legal Settlements and Other

During fiscal 2024 and fiscal 2023, the Company recorded a gain on legal settlements and other of $86.5 million and $74.4 million, respectively, in connection with the settlement of claims filed against certain manufacturers of capacitors. In fiscal 2023, the Company settled a portion of its pension liability related to certain retirees and terminated vested employees in the Company’s U.S. pension plan as part of a de-risking strategy and recognized non-cash settlement expense of $37.4 million. See Note 13, “Commitments and contingencies” to the Company’s consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for additional information related to the gain on legal settlements.

Income Tax

Income tax expenses were $133.6 million in fiscal 2024, reflecting an effective tax rate of 21.1% as compared to income tax expenses of $212.0 million in fiscal 2023, reflecting an effective tax rate of 21.6%. The decrease in the effective tax rate in fiscal 2024 as compared to fiscal 2023 was primarily due to the mix of income in lower tax foreign jurisdictions, partially offset by increases to unrecognized tax benefit reserves, net of settlements.

See Note 9, “Income taxes” to the Company’s consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for further discussion on the effective tax rate.

Net Income

As a result of the factors described in the preceding sections of this MD&A, the Company’s net income in fiscal 2024 was $498.7 million, or earnings per share on a diluted basis of $5.43, compared with fiscal 2023 net income of $770.8 million, or earnings per share on a diluted basis of $8.26.

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Liquidity and Capital Resources

Cash Flows

Operating Activities

Net cash provided by operating activities was $690.0 million during fiscal 2024, compared to net cash used by operating activities of $713.7 million during fiscal 2023. The $1.40 billion increase in net cash provided by operating activities year over year is primarily due to improvements in cash used for working capital and other as working capital levels have reduced as a result of declines in sales, offset by lower cash provided by net income. Cash generated by working capital and other was $11.2 million during fiscal 2024, compared to cash used for working capital of $1.68 billion during fiscal 2023, with the difference attributable primarily to cash used for inventories. During fiscal 2024, the Company used less cash for inventories as less inventory was purchased due to inventory levels already being elevated and because of lower sales. The Company also had decreases in accounts receivable due to lower sales when compared to the prior year. The Company received $90.7 million of cash from legal settlements during fiscal 2024 as compared to $69.9 million of cash received from legal settlements during fiscal 2023.

Financing Activities

Net repayments of debt totaled $156.5 million during fiscal 2024, including the repayment of $140.7 million under the Securitization Program, and $43.3 million under the Credit Facility, offset by net proceeds of $27.5 million for other debt. This compares to $1.39 billion of net borrowing during fiscal 2023. The Company paid cash dividends to shareholders of $1.24 per share, or $112.0 million, during fiscal 2024 as compared to $1.16 per share, or $106.3 million, during fiscal 2023. The Company has repurchased $162.7 million of common stock under the share repurchase plan during fiscal 2024 compared to $221.7 million during fiscal 2023.

Investing Activities

The Company’s purchases of property, plant and equipment increased during fiscal 2024 by $31.8 million, when compared to fiscal 2023, primarily due to a distribution center investment in EMEA. During fiscal 2023, the Company used $16.9 million for other investing activities.

Financing Transactions

The Company uses a variety of financing arrangements, both short-term and long-term, to fund its operations in addition to historical cash generated from operating activities. The Company also uses several funding sources to avoid becoming overly dependent on one financing source, and to lower overall funding costs. These financing arrangements include public debt (“Notes”), short-term and long-term bank loans, a revolving credit facility (the “Credit Facility”), and an accounts receivable securitization program (the “Securitization Program”).

The Company has various lines of credit, financing arrangements, and other forms of bank debt in the U.S. and various foreign locations to fund the short-term working capital, foreign exchange, overdraft, capital expenditure, and letter of credit needs of its wholly owned subsidiaries. Outstanding borrowings under such forms of debt at the end of fiscal 2024 was $100.4 million.

As an alternative form of liquidity outside of the United States, the Company sells certain of its trade accounts receivable on a non-recourse basis to financial institutions pursuant to factoring agreements. The Company accounts for these transactions as sales of receivables and presents cash proceeds as cash provided by operating activities in the

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consolidated statements of cash flows. Factoring fees for the sales of trade accounts receivable are classified within “Interest and other financing expenses, net” of the consolidated financial statements.

See Note 7, “Debt” to the Company’s consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for additional information on financing transactions including the Credit Facility, the Securitization Program and the outstanding Notes as of June 29, 2024.

Covenants and Conditions

The Company’s Credit Facility contains certain covenants with various limitations on debt incurrence, share repurchases, dividends, investments and capital expenditures, and also includes financial covenant requiring the Company to maintain a leverage ratio below a certain threshold. The Company was in compliance with all such covenants as of June 29, 2024.

The Company’s Securitization Program contains certain covenants relating to the quality of the receivables sold. If these conditions are not met, the Company may not be able to borrow any additional funds and the financial institutions may consider this an amortization event, as defined in the Securitization Program agreements, which would permit the financial institutions to liquidate the accounts receivables sold to cover any outstanding borrowings. Circumstances that could affect the Company’s ability to meet the required covenants and conditions of the Securitization Program include the Company’s ongoing profitability and various other economic, market, and industry factors. The Company was in compliance with all such covenants as of June 29, 2024.

Management does not believe that the covenants under the Credit Facility or Securitization Program limit the Company’s ability to pursue its intended business strategy or its future financing needs.

See Liquidity below for further discussion of the Company’s availability under these various facilities.

Liquidity

The Company held cash and cash equivalents of $310.9 million as of June 29, 2024, of which $179.6 million was held outside the United States. As of July 1, 2023, the Company held cash and cash equivalents of $288.2 million, of which $194.5 million was held outside of the United States.

During periods of weakening demand in the electronic components industry, the Company typically generates cash from operating activities. Conversely, the Company will use cash for working capital requirements during periods of higher growth. The Company generated $690.0 million in cash flows for operating activities during the fiscal year ended June 29, 2024.

Liquidity is subject to many factors, such as normal business operations and general economic, financial, competitive, legislative, and regulatory factors that are beyond the Company’s control. Cash balances held in foreign locations that cannot be remitted back to the U.S. in a tax efficient manner are generally used for ongoing working capital, including the need to purchase inventories, capital expenditures and other foreign business needs. In addition, local government regulations may restrict the Company’s ability to move funds among various locations under certain circumstances. Management does not believe such restrictions would limit the Company’s ability to pursue its intended business strategy.

As of June 29, 2024, there were $745.5 million of borrowings outstanding under the Credit Facility and $0.9 million in letters of credit issued, and $415.1 million outstanding under the Securitization Program. During fiscal 2024,

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the Company had an average daily balance outstanding under the Credit Facility of approximately $1.17 billion and $596.7 million under the Securitization Program. As of June 29, 2024, the combined availability under the Credit Facility and the Securitization Program was $844.5 million. Availability under the Securitization Program is subject to the Company having sufficient eligible trade accounts receivable in the United States to support desired borrowings.

The Company has the following contractual obligations outstanding as of June 29, 2024 (in millions):

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​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ Payments due by period

​ ​ ​ ​ ​ Less than ​ ​ ​ ​ ​ More than ​

Contractual Obligations ​ Total ​ 1 year ​ 1-3 years ​ 3-5 years ​ 5 years

​

(3) Excludes imputed interest on operating lease liabilities.

The Company purchases inventories in the normal course of business throughout the year through the issuance of purchase orders to suppliers. During fiscal 2024, the Company’s cost of sales, substantially all of which related to the underlying purchase of inventories was $21.0 billion and the Company had $5.5 billion of inventories as of June 29, 2024. The Company expects to continue to purchase sufficient inventory to meet its customers’ demands in fiscal year 2025, some of which relates to outstanding purchase orders at the end of fiscal 2024. Outstanding purchase orders with suppliers may be non-cancellable/non-returnable at the point such orders are issued, or may become non-cancellable at some point in the future, typically within 30 days to 90 days from the requested delivery date of inventories.

At June 29, 2024, the Company had an estimated liability for income tax contingencies of $130.3 million, which is not included in the above table. No cash payments associated with the settlement of these liabilities are expected to be paid within the next 12 months. The settlement period for the remaining amount of the unrecognized tax benefits, including related accrued interest and penalties, cannot be determined, and therefore was not included in the table.

As of June 29, 2024, the Company may repurchase up to an aggregate of $153.7 million of shares of the Company’s common stock through the share repurchase program approved by the Board of Directors. The Company may repurchase stock from time to time at the discretion of management, subject to strategic considerations, market conditions including share price and other factors. The Company may terminate or limit the share repurchase program at any time without prior notice. During fiscal 2024, the Company repurchased $164.8 million of common stock.

The Company has historically paid quarterly cash dividends on shares of its common stock, and future dividends are subject to approval by the Board of Directors. During the fourth quarter of fiscal 2024, the Board of Directors approved a dividend of $0.31 per share, which resulted in $27.8 million of dividend payments during the quarter.

The Company continually monitors and reviews its liquidity position and funding needs. Management believes that the Company’s ability to generate operating cash flows through the liquidation of working capital in the future and available borrowing capacity, including capacity for the non-recourse sale of trade accounts receivable, will be sufficient to meet its future liquidity needs. Additionally, the Company believes that it has sufficient access to additional liquidity from the capital markets if necessary.

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Critical Accounting Policies

The Company’s consolidated financial statements have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires the Company to make estimates and assumptions that affect the reported amounts of assets, liabilities, sales and expenses. These estimates and assumptions are based upon the Company’s continual evaluation of available information, including historical results and anticipated future events. Actual results may differ materially from these estimates.

The Securities and Exchange Commission defines critical accounting policies as those that are, in management’s view, most important to the portrayal of the Company’s financial condition and results of operations and that require significant judgments and estimates. Management believes the Company’s most critical accounting policies at the end of fiscal 2024 relate to the valuation of inventories and accounting for income taxes.

Valuation of Inventories

Inventories are recorded at the lower of cost or estimated net realizable value. Inventory cost includes the purchase price of finished goods and any freight cost incurred to receive the inventory into the Company’s distribution centers. The Company’s inventories include electronic components sold into changing, cyclical, and competitive markets, so inventories may decline in market value or become obsolete.

The Company regularly evaluates inventories for expected customer demand, obsolescence, current market prices, and other factors that may render inventories less marketable. Write-downs are recorded so that inventories reflect the estimated net realizable value and take into account the Company’s contractual provisions with its suppliers, which may provide certain protections to the Company for product obsolescence and price erosion in the form of rights of return, stock rotation rights, obsolescence allowances, industry specific supplier rebate programs and price protections. Because of the large number of products and suppliers and the complexity of managing the process around price protections, supplier rebate programs and stock rotations, estimates are made regarding the net realizable value of inventories. Additionally, assumptions about future demand and market conditions, as well as decisions to discontinue certain product lines, impact the evaluation of whether to write-down inventories. If future demand changes or actual market conditions are less favorable than assumed, then management evaluates whether additional write-downs of inventories are required. In any case, actual net realizable values could be different from those currently estimated.

Accounting for Income Taxes

Management’s judgment is required in determining income tax expense, unrecognized tax benefit liabilities, deferred tax assets and liabilities, and valuation allowances recorded against net deferred tax assets. Recovering net deferred tax assets depends on the Company’s ability to generate sufficient future taxable income in certain jurisdictions. In addition, when assessing the need for valuation allowances, the Company considers historic levels and types of income, expectations and risk associated with estimates of future taxable income, and ongoing prudent and feasible tax planning strategies. If the Company determines that it cannot realize all or part of its deferred tax assets in the future, it may record additional valuation allowances against the deferred tax assets with a corresponding increase to income tax expense in the period such determination is made. Similarly, if the Company determines that it can realize all or part of its deferred tax assets that have an associated valuation allowance established, the Company may release a valuation allowance with a corresponding benefit to income tax expense in the period such determination is made.

The Company establishes contingent liabilities for potentially unfavorable outcomes of positions taken on certain tax matters. These liabilities are based on management’s assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities. The anticipated and actual outcomes of these matters may differ, which

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may result in changes in estimates to such unrecognized tax benefit liabilities. To the extent such changes in estimates are necessary, the Company’s effective tax rate may fluctuate. In accordance with the Company’s accounting policy, accrued interest and penalties related to unrecognized tax benefits are recorded as a component of income tax expense.

In determining the Company’s income tax expense, management considers current tax regulations in the numerous jurisdictions in which it operates, including the impact of tax law and regulation changes in the jurisdictions the Company operates in. The Company exercises judgment for interpretation and application of such current tax regulations. Changes to such tax regulations or disagreements with the Company’s interpretation or application by tax authorities in any of the Company’s major jurisdictions may have a significant impact on the Company’s income tax expense.

See Note 9, “Income taxes” to the Company’s consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for further discussion on income tax expense, valuation allowances and unrecognized tax benefits.

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Recently Issued Accounting Pronouncements

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Tax Disclosures (“ASU No. 2023-09”), which updates income tax disclosures related to the effective income tax rate reconciliation and requires disclosure of income taxes paid by jurisdiction. ASU No. 2023-09 also provides further disclosure comparability. ASU No. 2023-09 will be effective for the Company in fiscal year 2026 and early adoption is permitted. The Company is currently evaluating the impact of adopting ASU No. 2023-09 on its disclosures.

In November 2023, the FASB issued ASU No. 2023-07, Segment reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU No. 2023-07”) which improves segment disclosure requirements, primarily through increased disclosures about significant segment expenses. ASU No. 2023-07 will be effective for the Company in fiscal year 2025, and interim periods beginning in fiscal year 2026 with early adoption permitted. The Company is currently evaluating the impact of adopting ASU No. 2023-07 on its disclosures.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The Company seeks to reduce earnings and cash flow volatility associated with changes in interest rates and foreign currency exchange rates by entering financial arrangements, from time to time, that are intended to provide an economic hedge against all, or a portion of, the risks associated with such volatility. The Company continues to have exposure to such risks to the extent they are not economically hedged.

The following table sets forth the scheduled maturities of the Company’s debt outstanding at June 29, 2024 (dollars in millions):

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​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Fiscal Year

Liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Floating rate debt ​ $ 490.0 ​ $ — ​ $ — ​ $ 745.5 ​ $ — ​ $ — ​ $ 1,235.5 ​

(1) Excludes unamortized discounts and issuance costs.

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The following table sets forth the carrying value and fair value of the Company’s debt and the average interest rates at June 29, 2024, and July 1, 2023 (dollars in millions):

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Carrying Value Fair Value at ​ Carrying Value Fair Value at

Liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Average interest rate ​ 5.0 % ​ ​ ​ ​ 5.0 % ​ ​ ​ ​

Average interest rate ​ 5.5 % ​ ​ ​ ​ 5.3 % ​ ​ ​ ​

Many of the Company’s subsidiaries purchase and sell products in currencies other than their functional currencies, which subjects the Company to the risks associated with fluctuations in currency exchange rates. The Company uses economic hedges to reduce this risk utilizing natural hedging (i.e., offsetting receivables and payables in the same foreign currency) and creating offsetting positions through the use of derivative financial instruments (primarily forward foreign currency exchange contracts typically with maturities of less than 60 days, but no longer than one year). The Company continues to have exposure to foreign currency risks to the extent they are not economically hedged. The Company adjusts any economic hedges to fair value within the same line item in the consolidated statements of operations as the remeasurement of the underlying assets or liabilities being economically hedged. Therefore, the changes in valuation of the underlying items being economically hedged are offset by the changes in fair value of the forward foreign exchange contracts. A hypothetical 10% change in foreign currency exchange rates under the forward foreign currency exchange contracts outstanding at June 29, 2024, would result in an increase or decrease of approximately $30.0 million to the fair value of the forward foreign exchange contracts, which would generally be offset by an opposite effect on the underlying exposure being economically hedged. See Note 2, “Derivative financial instruments” to the Company’s consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for further discussion on derivative financial instruments.

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Item 8. Financial Statements and Supplementary Data

Index to Financial Statements

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1. Consolidated Financial Statements: ​ ​

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​ Avnet, Inc. and Subsidiaries Consolidated Financial Statements: ​ ​

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​ Consolidated Balance Sheets at June 29, 2024, and July 1, 2023 ​ 36

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​ Notes to Consolidated Financial Statements ​ 41

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2. Financial Statement Schedule: ​ ​

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Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors

Avnet, Inc.:

Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting

We have audited the accompanying consolidated balance sheets of Avnet, Inc. and subsidiaries (the Company) as of June 29, 2024 and July 1, 2023, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended June 29, 2024, and the related notes and financial statement schedule II (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of June 29, 2024, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of June 29, 2024 and July 1, 2023, and the results of its operations and its cash flows for each of the years in the three-year period ended June 29, 2024, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 29, 2024 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with

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generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Evaluation of accounting for income taxes

As discussed in Notes 1 and 9 to the consolidated financial statements, the Company recognized $203.2 million of deferred tax assets, net, and income tax expense of $133.6 million as of and for the year ended June 29, 2024. The Company conducts business globally and consequently is subject to U.S. federal, state, and local income taxes as well as foreign income taxes in many of the jurisdictions in which it operates. The Company exercises judgment for the interpretation and application of such current tax regulations.

We identified the evaluation of accounting for income taxes as a critical audit matter. Evaluating the Company’s application of current tax regulations in various foreign jurisdictions and the impact of those regulations on foreign, U.S. federal, state and local income tax provisions required complex auditor judgment and the use of tax professionals with specialized skills.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s income tax process, including controls related to the application of current tax regulations in the various tax jurisdictions and impact on the Company’s tax provisions. We involved tax professionals with specialized skills and knowledge in various tax jurisdictions, who assisted in evaluating the Company’s analyses over the application of current tax regulations and the Company’s interpretation of tax laws and regulations in those jurisdictions.

​

/s/ KPMG LLP

​

We have served as the Company’s auditor since 2002.

Phoenix, Arizona

August 14, 2024

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​

AVNET, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

​

​ ​ ​ ​ ​ ​ ​ ​

​ June 29, July 1,

​ ​ (Thousands, except share

​ ​ amounts)

ASSETS ​ ​ ​ ​ ​ ​ ​

Current assets: ​ ​ ​ ​ ​ ​ ​

LIABILITIES AND SHAREHOLDERS’ EQUITY ​ ​ ​ ​ ​ ​ ​

Current liabilities: ​ ​ ​ ​ ​ ​ ​

Short-term operating lease liabilities ​ 53,993 ​ 51,792 ​

Long-term operating lease liabilities ​ ​ 173,886 ​ ​ 190,621 ​

Commitments and contingencies (Note 13) ​ ​ ​ ​ ​ ​ ​

Shareholders’ equity: ​ ​ ​ ​ ​ ​ ​

Accumulated other comprehensive loss ​ (486,723) ​ (409,381) ​

​

See notes to consolidated financial statements.

​

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​

AVNET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

​

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Years Ended

​ June 29, July 1, July 2,

​ ​ (Thousands, except per share amounts)

Russian-Ukraine conflict related expenses ​ ​ — ​ ​ — ​ ​ 26,261

Restructuring, integration, and other expenses ​ 52,550 ​ 28,038 ​ 5,272

Gain on legal settlements and other ​ ​ 86,499 ​ ​ 37,037 ​ ​ —

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Earnings per share: ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Shares used to compute earnings per share: ​ ​ ​ ​ ​ ​ ​ ​ ​

Cash dividends paid per common share ​ $ 1.24 ​ $ 1.16 ​ $ 1.00

​

See notes to consolidated financial statements.

​

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AVNET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Years Ended

​ June 29, ​ July 1, ​ July 2,

​ ​ (Thousands)

Other comprehensive income (loss), net of tax: ​ ​ ​ ​ ​ ​ ​ ​ ​

Cross-currency swap ​ ​ 6,608 ​ ​ (22,849) ​ ​ —

​

See notes to consolidated financial statements.

​

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AVNET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Years Ended June 29, 2024, July 1, 2023, and July 2, 2022

​

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​

​ ​ Common ​ Common ​ Additional ​ ​ ​ ​ Other ​ Total

​ ​ Stock- ​ Stock- ​ Paid-In ​ Retained ​ Comprehensive ​ Shareholders’

​ ​ Shares ​ Amount ​ Capital ​ Earnings ​ (Loss) Income ​ Equity

​ ​ (Thousands)

Translation adjustments and other ​ — ​ — ​ — ​ — ​ (324,139) ​ (324,139) ​

Cash dividends ($1.00 per share) ​ — ​ — ​ — ​ (98,490) ​ — ​ (98,490) ​

Translation adjustments and other ​ — ​ — ​ — ​ — ​ 64,486 ​ 64,486 ​

Cross-currency swap ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ (22,849) ​ ​ (22,849) ​

Translation adjustments and other ​ — ​ — ​ — ​ — ​ (60,434) ​ (60,434) ​

Cross-currency swap ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 6,608 ​ ​ 6,608 ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​

See notes to consolidated financial statements.

​

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AVNET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

​

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Years Ended

​ June 29, July 1, July 2,

​ ​ (Thousands)

Cash flows from operating activities: ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Non-cash and other reconciling items: ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Cash flows from financing activities: ​ ​ ​ ​ ​ ​ ​ ​ ​

Repayments of public notes ​ — ​ — ​ ​ (354,336)

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Cash flows from investing activities: ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Cash and cash equivalents: ​ ​ ​ ​ ​ ​ ​ ​ ​

​

Additional cash flow information (Note 15)

​

See notes to consolidated financial statements.

​

​

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AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

​

1. Summary of significant accounting policies

Basis of presentation — The accompanying consolidated financial statements include the accounts of Avnet, Inc. and all of its majority-owned and controlled subsidiaries (the “Company” or “Avnet”). All intercompany and intracompany accounts and transactions have been eliminated.

Reclassifications — Certain prior period amounts have been reclassified or combined to conform to the current period presentation.

Fiscal year — The Company operates on a “52/53 week” fiscal year, which ends on the Saturday closest to June 30th. Fiscal 2024, 2023 and 2022 contain 52 weeks. Unless otherwise noted, all references to “fiscal” or “year” shall mean the Company’s fiscal year.

Management estimates — The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities, reported amounts of sales and expenses and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Actual results could differ materially from those estimates.

Cash and cash equivalents — The Company considers all highly liquid investments with an original maturity of three months or less including money market funds to be cash equivalents.

Receivables – Receivables, predominately comprised of customer trade accounts, are reported at amortized cost, net of the allowance for credit losses in the consolidated balance sheets. The allowance for credit losses is a valuation account that is deducted from the receivables’ amortized cost basis to present the net amount expected to be collected. The Company estimates the allowance for credit losses using relevant available information about expected credit losses, including information about historical credit losses, past events, current conditions, and other factors which may affect the collectability of receivables. Adjustments to historical loss information are made for differences in current receivable specific risk characteristics, such as changes in customer behavior, economic and industry changes, or other relevant factors. Expected credit losses are estimated on a pooled basis when similar risk characteristics exist.

Inventories — Inventories, comprised principally of finished goods, are stated at the lower of cost or net realizable value. Inventory cost includes the purchase price of finished goods and any freight cost incurred to receive the inventory into the Company’s distribution centers. The Company regularly reviews the cost of inventory against its estimated net realizable value, considering historical experience and any contractual rights of return, stock rotations, vendor rebates, excess, and obsolescence allowances, or price protections provided by the Company’s suppliers. It records the lower of cost or net realizable value write-down if any inventories have a cost in excess of such inventories’ estimated net realizable value.

Depreciation, amortization and useful lives — The Company reports property, plant, and equipment at cost, less accumulated depreciation. Cost includes the price paid to acquire or construct the assets, required installation costs, interest capitalized during the construction period, and any expenditure that substantially adds to the value or substantially extends the useful life of an existing asset. Additionally, the Company capitalizes qualified costs related to software obtained or developed for internal use as a component of property, plant, and equipment. Software obtained for

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AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

​

internal use has generally been enterprise-level business operations, logistics, and finance software that is customized to meet the Company’s specific operational requirements. The Company begins depreciation and amortization (“depreciation”) for property, plant, and equipment when an asset is both in the location and condition for its intended use.

Property, plant, and equipment is depreciated using the straight-line method over its estimated useful lives. The estimated useful lives for property, plant, and equipment are typically as follows: buildings (30 years); machinery, fixtures and equipment (2-10 years); information technology hardware and software (2-10 years); and leasehold improvements (over the applicable lease term or economic useful life, if shorter).

The Company amortizes intangible assets acquired in business combinations or asset combinations using the straight-line method over the estimated economic useful lives of the intangible assets from the date of acquisition, which is generally between 5-10 years.

Long-lived asset impairment — Long-lived assets, including property, plant, equipment, intangible assets and operating lease assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. For purposes of recognition and measurement of an impairment loss, long-lived assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities (“asset group”). An impairment is recognized when the estimated undiscounted cash flows expected to result from the use of the asset group and its eventual disposition is less than its carrying amount. An impairment is measured as the amount by which an asset group’s carrying value exceeds its estimated fair value. The Company considers a long-lived asset to be abandoned when it has ceased use of such abandoned asset and if the Company has no intent to use or repurpose the asset in the future. The Company continually evaluates the carrying value and the remaining economic useful life of long-lived assets and adjusts the carrying value and remaining useful life when appropriate.

Leases — Substantially all the Company’s leases are classified as operating leases and are predominately related to real property for distribution centers, office space, and integration facilities, with a lease term of up to 14 years. The Company’s equipment leases are primarily for automobiles, distribution center equipment and office equipment, which are not material to the consolidated financial statements.

The Company determines if an arrangement contains a lease at inception. Lease right-of-use assets (“Operating lease assets”) and associated liabilities (“Operating lease liabilities”) are recognized at the commencement date of the lease based on the present value of lease payments over the lease term. Certain lease agreements may include one or more options to extend or terminate a lease. Lease terms are inclusive of these options if it is reasonably certain that the Company will exercise such options.

The Company’s leases generally do not provide an implicit borrowing rate, as such, the discount rate used to calculate present value is based upon an estimate of the Company’s secured borrowing rate, which varies based on the lease term and the currency of the lease payments. Lease cost is recognized on a straight-line basis over the lease term and is included as a component of “Selling, general, and administrative expenses” in the consolidated statements of operations. Lease payments are primarily fixed; however, certain lease agreements contain variable payments, which are expensed as incurred and not included in the measurement of operating lease assets and liabilities.

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AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

​

Goodwill — Goodwill represents the excess of the purchase price of acquired businesses over the estimated fair value assigned to the individual assets acquired and liabilities assumed. The Company does not amortize goodwill, but instead tests goodwill for impairment at least annually in the fourth quarter. If necessary, the Company records any impairment resulting from such goodwill impairment testing as a component of operating expenses. Impairment testing is performed at the reporting unit level, which is defined as the same, or one level below, an operating segment. The Company will perform an interim impairment test between required annual tests if facts and circumstances indicate that it is more-likely-than-not that the fair value of a reporting unit that has goodwill is less than its carrying value.

In performing goodwill impairment testing, the Company may first make a qualitative assessment of whether it is more-likely-than-not that a reporting unit’s fair value is less than its carrying value. If the qualitative assessment indicates it is more-likely-than-not that a reporting unit’s fair value is not greater than its carrying value, the Company must perform a quantitative impairment test. The Company defines the fair value of a reporting unit as the price that would be received to sell the reporting unit as a whole in an orderly transaction between market participants as of the impairment test date. To determine the fair value of a reporting unit, the Company uses the income methodology of valuation, which includes the discounted cash flow method, and the market methodology of valuation, which considers values of comparable businesses to estimate the fair value of the Company’s reporting units.

Significant management judgment is required when estimating the fair value of the Company’s reporting units from a market participant perspective (including forecasting of future operating results and the discount rates used in the discounted cash flow method of valuation) and in the selection of comparable businesses and related market multiples that are used in the market method of valuation. If the estimated fair value of a reporting unit exceeds the carrying value assigned to that reporting unit, goodwill is not impaired. If the reverse is true, then the Company measures a goodwill impairment loss based on such difference.

The Company evaluates each quarter if facts and circumstances indicate that it is more-likely-than-not that the fair value of its reporting units is less than their carrying value, which would require the Company to perform an interim goodwill impairment test. Indicators the Company evaluates to determine whether an interim goodwill impairment test is necessary include, but are not limited to, (i) a sustained decrease in share price or market capitalization as of any fiscal quarter end, (ii) changes in macroeconomic or industry environments, (iii) the results of, and the amount of time passed since, the last goodwill impairment test, and (iv) the long-term expected financial performance of its reporting units.

Foreign currency translation — The assets and liabilities of foreign operations are translated into U.S. Dollars at the exchange rates in effect at each balance sheet date, with the related translation adjustments reported as a separate component of shareholders’ equity and comprehensive income (loss). Results of operations are translated using the average exchange rates prevailing throughout the reporting period. Transactions denominated in currencies other than the functional currency of the Avnet subsidiaries that are party to the transactions are remeasured at exchange rates in effect at each balance sheet date or upon settlement of the transaction. Gains and losses from such remeasurements are recorded in the consolidated statements of operations as a component of “Other expense, net.”

Income taxes — The Company follows the asset and liability method of accounting for income taxes. Deferred income tax assets and liabilities are recognized for the estimated future tax impact of differences between the consolidated financial statement carrying amounts of assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in

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AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

​

tax rates is recognized within income tax expense in the period in which the new tax rate is enacted. Based upon historical and estimated levels of future taxable income and analysis of other key factors, the Company may increase or decrease a valuation allowance against its deferred tax assets, as deemed necessary, to adjust such assets to their estimated net realizable value.

The Company establishes contingent liabilities for potentially unfavorable outcomes of positions taken on certain tax matters. These liabilities are based on management’s assessment of whether a tax benefit is more-likely-than-not to be sustained upon examination by the relevant tax authorities. Differences between the estimated and actual outcomes of these matters may result in future changes in estimates to such unrecognized tax benefits. Any such changes in estimates may impact the Company’s effective tax rate. In accordance with the Company’s accounting policies, accrued interest and penalties related to unrecognized tax benefits are recorded as a component of income tax expense.

Revenue recognition — Revenue is recognized at the point at which control of the underlying products are transferred to the customer, which includes determining whether products are distinct and separate performance obligations. For electronic component and related product sales, transfer of control to the customer generally occurs upon product shipment, but it may occur at a later date depending on the agreed upon sales terms (such as delivery at the customer's designated location, or when products that are consigned at customer locations are consumed). In limited instances, where products are not in stock and delivery times are critical, product is purchased from the supplier and drop-shipped to the customer. The Company typically takes control of the products when shipped by the supplier and then recognizes revenue when control of the product transfers to the customer. The Company does not have material product warranty obligations, because the assurance type product warranties provided by the component manufacturers are passed through to the Company’s customers.

For contracts related to the specialized manufacture of products for customers with no alternative use and for which the Company has an enforceable right to payment, including a reasonable profit margin, the Company recognizes revenue over time as control of the products transfer through the manufacturing process. The contract assets associated with such specialized manufacturing products are not material.

Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products. The Company estimates different forms of variable consideration at the time of sale based on historical experience, current conditions, and contractual obligations. Revenue is recorded net of customer discounts and rebates. When the Company offers the right or has a history of accepting returns of product, historical experience is utilized to establish a liability for the estimate of expected returns and an asset for the right to recover the product expected to be returned. These adjustments are made in the same period as the underlying sales transactions.

The Company considers the following indicators amongst others when determining whether it is acting as a principal in the contract where revenue would be recorded on a gross basis: (i) the Company is primarily responsible for fulfilling the promise to provide the specified products or services; (ii) the Company has control of inventory and the related inventory risk before the specified products have been transferred to a customer or after transfer of control to the customer; and (iii) the Company has discretion in establishing the price for the specified products. If a transaction does not meet the Company’s indicators of being a principal in the transaction, then the Company is acting as an agent in the transaction and the associated revenues are recognized on a net basis.

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AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

​

The Company has contracts with certain customers where the Company's performance obligation is to arrange for the products or services to be provided by another party. In these arrangements, as the Company assumes an agency relationship in the transaction, revenue is recognized in the amount of the net fee associated with serving as an agent. These arrangements primarily relate to the sale of electronic component supply chain services or to a lesser extent supplier software services.

Sales tax and other tax amounts collected from customers for remittance to governmental authorities are excluded from revenue. The Company accounts for shipping and handling of product as a fulfillment activity. The Company does not have any payment terms that exceed one year from the point it has satisfied the related performance obligations. Tariffs are included in sales as the company has enforceable rights to additional consideration to cover the cost of tariffs. Other taxes imposed by governmental authorities on the company's revenue producing activities with customers, such as sales taxes and value added taxes, are excluded from net sales.

Vendor allowances and consideration —Consideration received from suppliers for price protection, product rebates, sell through incentives, marketing/promotional activities, or any other programs are recorded when earned (under the terms and conditions of such supplier programs) as adjustments to product costs or selling, general and administrative expenses, depending upon the nature and contractual requirements related to the consideration received. Some of these supplier programs require management to make estimates and may extend over multiple periods.

Comprehensive income (loss) — Comprehensive income (loss) represents net income for the year adjusted for certain changes in shareholders’ equity. Accumulated comprehensive income (loss) items impacting comprehensive income (loss) includes foreign currency translation, unrealized gains and losses on derivative instruments designated and qualifying as net investment hedges, and the impact of the Company’s pension liability adjustments, net of tax.

Stock-based compensation — The Company measures stock-based payments at fair value and generally recognizes the associated operating expense in the consolidated statements of operations over the requisite service period. A stock-based payment is considered vested for accounting expense attribution purposes when the employee’s retention of the award is no longer contingent on providing continued service. Accordingly, the Company recognizes all stock-based compensation expense for awards granted to retirement eligible employees over the period from the grant date to the date retirement eligibility is achieved, if less than the stated requisite service period. The expense attribution approach for retirement eligible employees does not affect the overall amount of compensation expense recognized, but instead accelerates the recognition of such expense.

Restructuring and exit activities —The determination of when the Company accrues for involuntary termination benefits under restructuring plans depends on whether the termination benefits are provided under an on-going benefit arrangement or under a one-time benefit arrangement. The Company accounts for on-going benefit arrangements in accordance with Accounting Standards Codification 712 (“ASC 712”) Nonretirement Postemployment Benefits and accounts for one-time benefit arrangements in accordance with ASC 420 Exit or Disposal Cost Obligations. If applicable, the Company records such costs into operating expense over the terminated employee’s future service period beyond any minimum retention period. Other costs associated with restructuring or exit activities may include contract termination costs and impairments of long-lived assets, which are expensed in accordance with ASC 420 Exit or Disposal Cost Obligations and ASC 360 Property, Plant and Equipment, respectively.

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AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

​

Gainon legal settlements — The Company recognizes gains on legal settlements only when such gains are realized or realizable.

Concentration of credit risk — Financial instruments that potentially subject the Company to a concentration of credit risk principally consist of cash and cash equivalents, marketable securities, and trade accounts receivable. The Company invests its excess cash primarily in overnight time deposits and institutional money market funds with highly rated financial institutions. To reduce credit risk, management performs ongoing credit evaluations of its customers’ financial condition and, in some instances, has obtained credit insurance coverage to reduce such risk. The Company maintains reserves for potential credit losses from customers, but has not historically experienced material losses related to individual customers or groups of customers in any particular end market or geographic area.

Fair value — The Company measures financial assets and liabilities at fair value based upon an exit price, representing the amount that would be received from the sale of an asset, or paid to transfer a liability, in an orderly transaction between market participants. ASC 820, Fair Value Measurements, requires inputs used in valuation techniques for measuring fair value on a recurring or non-recurring basis be assigned to a hierarchical level as follows: Level 1 are observable inputs that reflect quoted prices for identical assets or liabilities in active markets; Level 2 are observable market-based inputs or unobservable inputs that are corroborated by market data; and, Level 3 are unobservable inputs that are not corroborated by market data. During fiscal 2024, 2023, and 2022, there were no transfers of assets measured at fair value between the three levels of the fair value hierarchy. The carrying amounts of the Company’s financial instruments, including cash equivalents, receivables, and accounts payable approximate their fair values at June 29, 2024, due to the short-term nature of these assets and liabilities. At June 29, 2024, and July 1, 2023, the Company had $14.1 million and $3.7 million, respectively, of cash equivalents that were measured at fair value based upon Level 1 criteria.

Investments — Equity investments in businesses or start-up companies (“ventures”) are accounted for using the equity method if the investment provides the Company the ability to exercise significant influence, but not control, over the ventures. All other equity investments, which consist of investments for which the Company does not possess the ability to exercise significant influence over the ventures, are measured at fair value, using quoted market prices, or at cost minus impairment, if any, plus or minus changes resulting from observable price changes when fair value is not readily determinable. Investments in ventures are included in “Other assets” in the Company’s consolidated balance sheets. Changes in fair value, including impairments for investments in ventures, if any, are recorded in “Other expense, net” in the Company’s consolidated statements of operations. As of June 29, 2024, the Company’s investment in a venture was $23.5 million.

Environmental liabilities — The Company accrues for environmental liabilities when it is probable that obligations have been incurred and the associated amounts can be reasonably estimated. The Company uses a third-party specialist to assist in appropriately measuring its obligations associated with environmental liabilities. Such liabilities are adjusted as new information develops or circumstances change. The Company does not discount its environmental liabilities as the timing of the anticipated cash payments is not fixed or readily determinable. The Company’s estimate of its potential liability is independent of any potential recovery of insurance proceeds or indemnification arrangements and the Company’s environmental liabilities have not been reduced for potential insurance recoveries.

Recently adopted accounting pronouncements — In September 2022, the FASB issued ASU No. 2022-04, Liabilities(subtopic 405-50): Supplier Finance Programs (“ASU No. 2022-04”) to enhance the transparency of certain

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

​

supplier finance programs to assist financial statement users in understanding the effect of such programs on a company’s working capital, liquidity, and cash flows. The new guidance requires qualitative and quantitative disclosure sufficient to enable users of the financial statements to understand the nature, activity during the period, changes from period to period, and potential magnitude of such programs. The Company adopted this guidance in the first quarter of fiscal 2024, except for the amendment on roll-forward information, which is effective for the Company in fiscal 2025. The Company’s adoption of ASU No. 2022-04 did not have a material impact on the Company’s consolidated financial statements.

​

​

2. Derivative financial instruments

Many of the Company’s subsidiaries purchase and sell products in currencies other than their functional currencies, which subjects the Company to the risks associated with fluctuations in currency exchange rates. This foreign currency exposure relates primarily to international transactions where the currency collected from customers can be different from the currency used to purchase from suppliers. The Company’s foreign operations transactions are denominated primarily in the following currencies: U.S. Dollar, Euro, British Pound, Japanese Yen, Chinese Yuan, Taiwan Dollar, Canadian Dollar and Mexican Peso. The Company also, to a lesser extent, has foreign operations transactions in other EMEA and Asian foreign currencies.

The Company uses economic hedges to reduce this risk utilizing natural hedging (i.e., offsetting receivables and payables in the same foreign currency) and creating offsetting positions using of derivative financial instruments (primarily forward foreign exchange contracts typically with maturities of less than 60 days, but no longer than one year). The Company continues to have exposure to foreign currency risks to the extent they are not economically hedged. The fair value of forward foreign exchange contracts is based on Level 2 criteria under the ASC 820 fair value hierarchy. The Company’s master netting and other similar arrangements with various financial institutions related to derivative financial instruments allow for the right of offset. The Company’s policy is to present derivative financial instruments with the same counterparty as either a net asset or liability when the right of offset exists. Under the Company’s economic hedging policies, gains and losses on the derivative financial instruments are classified within the same line item in the consolidated statements of operations as the remeasurement of the underlying assets or liabilities being economically hedged.

In fiscal 2023, the Company entered into a fixed-to-fixed rate cross currency swap (the “cross-currency swap”) with a notional amount of $500.0 million, or €472.6 million, that is set to mature in March 2028. The Company designated this derivative contract as a net investment hedge of its European operations and elected the spot method for measuring hedge effectiveness. Changes in fair value of the cross-currency swap is presented in “Accumulated other comprehensive loss” in the consolidated balance sheets. Amounts related to the cross-currency swap recognized directly in net income represent net periodic interest settlements and accruals, which are recognized in “Interest and other financing expenses, net,” on the consolidated statements of operations. The fair value of the cross-currency swaps is based on Level 2 criteria under the ASC 820 fair value hierarchy.

The Company uses these derivative financial instruments to manage risks associated with foreign currency exchange rates and interest rates. The Company does not enter derivative financial instruments for trading or speculative purposes and monitors the financial stability and credit standing of its counterparties.

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​

The locations and fair values of the Company’s derivative financial instruments in the Company’s consolidated balance sheets are as follows:

​

​ ​ ​ ​ ​ ​ ​

​ ​ June 29, July 1,

​ ​ (Thousands)

Economic hedges ​ ​ ​ ​ ​ ​

Prepaid and other current assets ​ $ 12,116 ​ $ 69,104

Cross-currency swap ​ ​ ​ ​ ​ ​

​

The locations of derivative financial instruments on the Company’s consolidated statements of operations are as follows:

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ Years Ended

​ ​ ​ June 29, July 1, July 2,

​ ​ ​ ​ (Thousands)

Economic hedges Other (expense) income, net ​ $ (31,666) ​ $ 40,454 ​ $ (37,336)

​

​

​

3. Shareholders’ equity

Accumulated comprehensive loss

The following table includes the balances within “Accumulated other comprehensive loss”:

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ June 29, July 1, July 2,

​ ​ (Thousands)

​

Substantially all amounts reclassified out of “Accumulated comprehensive loss, net of tax”, to operating expenses during fiscal 2024, 2023, and 2022 related to net periodic pension costs as discussed further in Note 10.

Share repurchase program

During fiscal 2024, the Company repurchased 3.3 million shares under existing programs for a total cost of $164.8 million, excluding excise tax. As of June 29, 2024, the Company had $153.7 million remaining under its new share repurchase authorization.

Common stock dividend

During fiscal 2024, the Company paid dividends of $1.24 per common share and $112.0 million in total.

​

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​

4. Working capital

Receivables

The Company’s receivables and allowance for credit losses were as follows:

​ ​ ​ ​ ​ ​ ​

​ ​ June 29, ​ July 1,

​ ​ (Thousands)

The Company had the following activity in the allowance for credit losses during fiscal 2024 and fiscal 2023:

​ ​ ​ ​ ​ ​ ​

​ ​ June 29, ​ July 1,

​ ​ (Thousands)

Credit Loss Recoveries ​ ​ (1,584) ​ ​ (931)

Foreign Currency Effect and Other ​ ​ (1,265) ​ ​ 1,626

​

Inventories

The Company’s inventories are primarily comprised of electronic components purchased from the Company’s suppliers, which are available for sale to customers in the normal course of the Company’s electronic component distribution business. Classified within inventories are electronic components held for supply chain service engagements (components) where the Company is acting as an agent on behalf of an Original Equipment Manufacturer or in some cases the component supplier. Given that these supply chain services involve purchasing, warehousing and providing logistics services for components as part of the services, the Company classifies the underlying components within inventories on the consolidated balance sheets. Components held for supply chain services where the Company is acting as an agent represented approximately 7% and 8% of inventories as of June 29, 2024, and July 1, 2023, respectively.

​

​

​

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5. Property, plant and equipment, net

Property, plant and equipment are recorded at cost, less accumulated depreciation, and consist of the following:

​

​ ​ ​ ​ ​ ​ ​ ​

​ ​ (Thousands)

Information technology hardware and software ​ 903,812 ​ 884,448 ​

Depreciable property, plant and equipment, gross ​ 1,455,200 ​ 1,390,174 ​

Depreciable property, plant and equipment, net ​ 311,182 ​ 280,543 ​

​

Depreciation expense related to property, plant, and equipment, was $83.6 million, $82.6 million and $87.4 million in fiscal 2024, 2023, and 2022, respectively. Interest expense capitalized during fiscal 2024, 2023, and 2022 was not material.

​

​

6. Goodwill

Goodwill

The following table presents the change in goodwill balances by reportable segment for fiscal year 2024.

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ Electronic ​ ​ ​

​ ​ Components ​ Farnell ​ Total

​ ​ (Thousands)

(1) Includes accumulated impairment of $1,482,677 from prior fiscal years.

​

​

​

​

​

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7. Debt

Short-term debt consists of the following (in thousands):

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ June 29, ​ July 1, ​ June 29, ​ July 1, ​

​ ​ Interest Rate ​ Carrying Balance

Revolving credit facilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​

The Company has a trade accounts receivable securitization program (the “Securitization Program”) in the United States with a group of financial institutions. The Securitization Program allows the Company to transfer, on an ongoing revolving basis, an undivided interest in a designated pool of trade accounts receivable, to provide security or collateral for borrowings of up to $700.0 million. The Securitization Program does not qualify for off balance sheet accounting treatment and any borrowings under the Securitization Program are recorded as debt in the consolidated balance sheets. Under the Securitization Program, the Company legally sells and isolates certain U.S. trade accounts receivable into a wholly owned and consolidated bankruptcy remote special purpose entity. Such receivables, which are recorded within “Receivables” in the consolidated balance sheets, totaled $1.05 billion and $1.27 billion at June 29, 2024, and July 1, 2023, respectively. The Securitization Program contains certain covenants relating to the quality of the receivables sold. There were $415.1 million and $555.8 million borrowings outstanding under the Securitization Program as of June 29, 2024, and as of July 1, 2023, respectively.

Other short-term debt consists of various committed and uncommitted lines of credit and other forms of bank debt with financial institutions utilized primarily to support the ongoing working capital requirements of the Company, including its foreign operations.

Long-term debt consists of the following (in thousands):

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ June 29, ​ July 1, ​ June 29, ​ July 1, ​

​ ​ Interest Rate ​ Carrying Balance

Revolving credit facilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Accounts receivable securitization program ​ — ​ ​ 5.99 % ​ $ — ​ $ 555,800 ​

Other long-term debt ​ 4.74 % ​ — ​ ​ ​ 22,748 ​ ​ — ​

Public notes due: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​

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The Company has a five-year $1.50 billion revolving credit facility (the “Credit Facility”) with a syndicate of banks, which expires in August 2027. It consists of revolving credit facilities and the issuance of up to $200.0 million of letters of credit and up to $300.0 million of loans in certain approved currencies. Under the Credit Facility, the Company may select from various interest rate options, currencies, and maturities. The Credit Facility contains certain covenants including various limitations on debt incurrence, share repurchases, dividends, investments, and capital expenditures. The Credit Facility also includes a financial covenant requiring the Company to maintain a leverage ratio not to exceed a certain threshold, which the Company was in compliance with as of June 29, 2024. At June 29, 2024, and July 1, 2023, there were $0.9 million in letters of credit issued under the Credit Facility.

Aggregate debt maturities for the next five fiscal years and thereafter are as follows (in thousands):

​

​ ​ ​ ​ ​

Discount and debt issuance costs – unamortized ​ (11,599) ​

​

​

​

At June 29, 2024, the carrying value and fair value of the Company’s total debt was $2.90 billion and $2.85 billion, respectively. At July 1, 2023, the carrying value and fair value of the Company’s total debt was $3.06 billion and $2.98 billion, respectively. Fair value for the public notes was estimated based upon quoted market prices (Level 1) and, for other forms of debt, fair value approximates carrying value due to the market based variable nature of the interest rates on those debt facilities (Level 2).

​

8. Accrued expenses and other

Accrued expenses and other consist of the following:

​

​

​ ​ ​ ​ ​ ​ ​ ​

​ ​ (Thousands)

Accrued interest and banking costs ​ 34,811 ​ 86,162 ​

Accrued property, plant and equipment ​ ​ 20,451 ​ ​ 28,771 ​

​

​

​

9. Income taxes

The components of income tax expense (“tax provision”) are included in the table below. The tax provision for deferred income taxes results from temporary differences arising primarily from net operating losses, inventories valuation, receivables valuation, suspended interest deductions, certain accrued amounts, and depreciation and amortization, net of any changes to valuation allowances.

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​

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Years Ended

​ ​ (Thousands)

Current: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Deferred: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​

The tax provision is computed based upon income before income taxes from both U.S. and foreign operations. U.S. income before income taxes was $186.6 million, $250.8 million and, $197.1 million, in fiscal 2024, 2023, and 2022, respectively, and foreign income before income taxes was $445.6 million, $732.1 million, and $636.3 million, in fiscal 2024, 2023, and 2022, respectively.

On August 16, 2022, the U.S. government enacted the Inflation Reduction Act of 2022 (the "IRA"). The IRA includes various tax provisions, including a 15% corporate minimum income tax rate ("CAMT"), expanded tax credits for clean energy incentives, and 1% excise tax on corporate stock repurchases. The CAMT is effective for tax periods beginning with fiscal 2024. The company has evaluated the applicability and determined that there is no CAMT liability in fiscal 2024. In addition, the Company purchased $36.6 million of transferable federal tax credits in fiscal 2024.

The Organization for Economic Co-operation and Development (OECD) has recently enacted a new global minimum tax framework known as Pillar Two. These rules have been agreed to by most OECD members. The OECD has since issued administrative guidance providing transition and safe harbor rules around the implementation of Pillar Two rules. The Company will be subject to Pillar Two rules starting in fiscal 2025. The Company does not currently expect Pillar Two taxes to have a significant impact on its income tax expense. The Company is continuing to evaluate the potential impacts of proposed and enacted legislative changes as new guidance becomes available.

The Company asserts that all of its unremitted foreign earnings are permanently reinvested, and any unrecorded liabilities related to this assertion are not material.

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Reconciliations of the U.S. federal statutory income tax rate to the effective income tax rates are as follows:

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Years Ended

U.S. federal statutory rate 21.0 % ​ 21.0 % ​ 21.0 %

State and local income taxes, net of federal benefit 0.9 ​ ​ 0.9 ​ ​ 1.1 ​

Tax on foreign income, net of valuation allowances (2.1) ​ ​ 0.5 ​ ​ (1.7) ​

Change in unrecognized tax benefit reserves 0.1 ​ ​ (0.5) ​ ​ (0.6) ​

Tax audit settlements 0.3 ​ ​ 0.3 ​ ​ 0.2 ​

Impact of surrender of Company owned life insurance policies ​ — ​ ​ — ​ ​ 1.4 ​

Impact on foreign currency translation loss ​ — ​ ​ (1.2) ​ ​ — ​