UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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☑ | | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended June 29, 2019July 2, 2022
or
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☐ | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 1-4224
Avnet, Inc.
(Exact name of registrant as specified in its charter)
New York (State or other jurisdiction of incorporation or organization) |
| 11-1890605 (I.R.S. Employer Identification No.) |
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2211 South 47th Street, Phoenix, Arizona (Address of principal executive offices) | | 85034 (Zip Code) |
Registrant’s telephone number, including area code (480) (480) 643-2000
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class | | Trading Symbol | | |
Title of Each Class
| | Trading Symbol
| | Name of Each Exchange on Which registered: |
Common stock, par value $1.00 per share | | AVT | | Nasdaq Global Select Market |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑þ No ☐◻
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐◻ No ☑þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑þ No ☐◻
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑þ No ☐◻
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☑Accelerated Filer þ | | Accelerated filer ☐Filer ◻ | | Non-accelerated filer ☐Filer ◻ | | Smaller reporting company Reporting Company ☐ | | Emerging growth company Growth Company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐◻
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
The aggregate market value (approximate) of the registrant’s common equity held by non-affiliates based on the closing price of a share of the registrant’s common stock for Nasdaq Global Select Market composite transactions on December 28, 201831, 2021 (the last business day of the registrant’s most recently completed second fiscal quarter) was $3,868,372,764.$4,024,669,419.
As of July 26, 2019,29, 2022, the total number of shares outstanding of the registrant’s Common Stock was 103,619,87194,667,636 shares, net of treasury shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement (to be filed pursuant to Reg. 14A) relating to the Annual Meeting of Shareholders anticipated to be held on November 19, 2019,17, 2022, are incorporated herein by reference in Part III of this Report.
Human Capital
The Company highly values its employees, and recognizes their significant contributions to the success of the Company. The Company invests in its global workforce to drive diversity and inclusion; provide fair and market-competitive pay and benefits; foster employee development for future opportunities within the company; promote employees health and safety; and obtain employees’ feedback to better understand employees’ experiences and identify opportunities. Its core values of integrity, customer focus, ownership, teamwork and inclusiveness establish the foundation on which its culture is built and are key expectations of its employees. The Company believes that its culture and commitment to its employees are vital in its ability to attract, motivate and retain exceptional talent.
Additional information regarding the Company’s Human Capital programs, initiatives, and metrics can be found on its website as well as in its Sustainability Reports accessible on its website. The Sustainability Reports and other information contained on the Company’s website are neither part of nor incorporated by reference into this Annual Report.
Number of Employees
As of July 2, 2022, the Company’s global workforce totaled approximately 15,300 employees across 48 countries. Broken down by geographic region, approximately 4,500 employees are in the Americas, 6,600 employees in EMEA, and 4,200 employees in the Asia as of July 2, 2022.
At June 29, 2019, Avnet had approximately 15,500Diversity, Equity and Inclusion (“DEI”)
The Company’s DEI Vision is to have (i) an employee population that reflects the diverse communities in which they live, work, and do business, and (ii) an organizational culture which seeks out varying perspectives that allow the best ideas to come to light and help the Company achieve and maximize business success. The Company recognizes that everyone deserves respect and equal treatment, regardless of gender, race, ethnicity, age, disability, sexual orientation, gender identity, veteran status, cultural background, or religious beliefs. The Company’s commitment to diversity is evidenced by the makeup of its Board of Directors and its employees. As of July 2, 2022, the Board was 45% racially and ethnically diverse, and 27% women, and its global employees comparedwere over 45% women.
To oversee inclusion efforts, the Company created the Global DEI Council, which is made up of 20 individuals who represent various business units and corporate functions. The council meets regularly and engages with colleagues across the Company to 15,400connect DEI initiatives to the Company’s broader business strategy. In addition, for fiscal 2022 and 2021, executive’s annual incentive compensation included an ESG non-financial performance goal to demonstrate the Company’s ESG commitment.
In furtherance of DEI goals, the Company conducts listen-and-learn sessions on a variety of DEI topics, which promote meaningful discussions and allow employees to better understand and support each other. These group conversations are open to the entire Company, and are regularly attended by senior leaders, including the CEO. During fiscal 2022, five sessions were conducted covering Black History Month, Allyship and Gender Partnership in the Workplace, Autism, Women and Bias, and Gender Inclusivity. The Company also supports employee-led Employee Resource Groups (ERGs) that are open to all employees and provide a forum to communicate and exchange ideas, build a network of relationships across the Company, and support each other in personal and career development. There are two ERGs for Black and women employees, and a third ERG for Hispanic and Latino employees is being formed. Additionally, the Company maintains an official culture and diversity calendar and publishes articles on its intranet to celebrate events and holidays around the world. In fiscal 2022, the Company’s employees celebrated International Women’s Day by holding a global event with external speakers discussing gender bias. Since 2020, Juneteenth, which
commemorates the official end of slavery in the United States and the emancipation of Black slaves, has been an official company-paid holiday for employees in the United States, a year before the federal government recognized it officially.
The Company provided unconscious bias training to its top 500 leaders, and is developing a suitable training for all employees. DEI education topics are regularly presented at June 30, 2018,the company-wide quarterly town hall, team and 15,700leadership meetings, and through internal webinars and podcasts open to all employees.
The Company employs diversity initiatives to ensure women and minorities are considered for its internship program and leadership roles, and attempts to utilize inclusive recruitment practices to attract and source diverse talent and mitigate potential bias. It has formed partnerships with ABILITYJobs, an employment website for people with disabilities, and Diversity Jobs, a recruiting and employment website with a network of niche sites for Black, Latinx, Asians, Native Americans, women, veterans, people with disabilities, people over age fifty, and LGBTQIA+ community. The Company has built new relationships with college career services departments and diversity-based student organizations such as YearUp, and attends multiple diversity, veteran, disability, and college job fairs.
The Company further undertakes DEI initiatives to improve its supplier and vendor diversity and support businesses with a Minority, Women or Veteran Business Enterprise (MWVBE) designation. For example, it provides opportunities regarding underwriting and other active roles in the Company’s capital-raising activities and short-term investments. In the area of procurement, the Company is exploring the possibility of dual sourcing as a strategy to give entry to MWVBE suppliers and vendors. For fiscal 2022, the Company began capturing its procurement diversity spend in the United States.
The Company continues to support women in the electronics industry, and has been a member of the Arizona Technology and Diversity Council since 2021. In addition, the Company’s CEO and another Company leader serve on the advisory board of Women in Electronics. It has participated in McKinsey’s “Women in the Workplace” study for the last six years, and has conducted for the past two years an industry-wide Women in Engineering Survey with results published annually on Farnell’s website.
Pay Equity, Benefits and Wellness
The Company strives to pay all its employees fairly, without regard to gender, race, or other personal characteristics, and competitively to attract, retain and incentivize talent. The Company sets pay ranges based on market data and considers factors such as an employee’s role, experience, tenure, job location, and job performance. Depending on the position, the Company uses a combination of fixed and variable pay including base salary, incentive awards, commissions, and merit increases. In addition, as part of its long-term incentive plan for certain employees, the Company provides share-based compensation to align employee’s interests with shareholders. The Company reviews its compensation practices, both in terms of its overall workforce and individual employees, to help ensure that pay remains fair and equitable.
The Company also offers a wide array of benefits that support employees’ physical, financial, and emotional well-being. Benefits include health benefits for eligible full-time and part-time U.S. employees and dependents, such as medical, behavioral, dental, vision, pharmacy, fertility and transgender coverage as well as disability and life insurance coverage. The Company offers time-off benefits, including paid family care leave for both hourly and salaried employees; a pension plan benefit for U.S. employees after one year of service; a 401(k) plan for employees to contribute towards their retirement goals; and an employee stock purchase plan that allows employees to purchase Company shares at July 1, 2017.a discount. In Canada and the United States, the Company provides education financial assistance for employees who wish to pursue undergraduate or graduate education to further their career development, and a
The corporate governance information on the Company’s website includes the Company’s Corporate Governance Guidelines, the Code of Conduct and the charters for each of the committees of its Board of Directors. In addition, amendments to these documents and waivers granted to directors and executive officers under the Code of Conduct, if any, will be posted in this area of the website. These documents can be accessed at http://www.avnet.com under the “Company — Investor Relations — Documents & Charters” caption.ir.avnet.com/documents-charters. Printed versions can be obtained, free of charge, by writing to the Company at the address listed above in “Available Information.”
In addition, the Company’s filings with the SEC, as well as Section 16 filings made by any of the Company’s executive officers or directors with respect to the Company’s common stock, are available on the Company’s website (http://www.avnet.com under the “Company — Investor Relations — SEC Filings” caption)ir.avnet.com/financial-information/sec-filings) as soon as reasonably practicable after the filing is electronically filed with, or furnished to, the SEC.
These details about the Company’s website and its content are only for information. The contents of the Company’s website are not, nor shall they be deemed to be, incorporated by reference in this Report.
Item 1A. Risk Factors
Forward-Looking Statements and Risk Factors
This Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) with respect to the financial condition, results of operations, and business of Avnet. These statements are generally identified by words like “believes,” “plans,” “projects,” “expects,” “anticipates,” “should,” “will,” “may,” “estimates”“estimates,” or similar expressions. Forward-looking statements are subject to numerous assumptions, risks, and uncertainties.uncertainties, and actual results and other outcomes could differ materially from those expressed or implied in the forward-looking statements. Any forward-looking statement speaks only as of the date on which that statement is made. Except as required by law, Avnetthe Company does not undertake any obligation to update any forward-looking statements whether as a result of new information, futureto reflect events or otherwise. Factorscircumstances that occur after the date on which the statement is made.
Risks and uncertainties that may cause actual results to differ materially from those contained in the forward-looking statements include those discussed below.
Thethe risk factors discussed below, but may also include risks and uncertainties not presently known to the Company or that management does not currently consider material. Such factors make the Company’s operating results for future periods difficult to predict and, therefore, prior results aredo not necessarily indicative ofindicate results to be expected in future periods.periods except as disclosed. Some of the risks disclosed below may have already occurred, but not to a degree that management considers material unless otherwise noted. Any of the below factors, or any other factors discussed elsewhere in this Report, may have an adverse effect on the Company’s financial condition, operating results, operations, prospects, and liquidity. The Company’s operating results have fluctuated inSimilarly, the past and likely will continue to do so. If the Company’s operating results fall below its forecasts and the expectations of public market analysts and investors, the trading price of the Company’s common stock will likely decrease.
Economic weakness and geopolitical uncertainty could adversely affectis subject to volatility due to fluctuations in general market conditions; actual financial results that do not meet the Company’s results and prospects.
The Company’s financial results, operations and prospects depend significantly on worldwide economic and geopolitical conditions,or the demand for its products and services, and the financial condition of its customers and suppliers. Economic weakness and geopolitical uncertainty, including the uncertainty caused by the United Kingdom’s planned exit from the European Union commonly referred to as “Brexit,” haveinvestment community’s expectations; changes in the past resulted, and may result in the future, in decreased sales, margins and earnings. Economic weakness and geopolitical uncertainty may also lead the Company to impair assets, including goodwill, intangible assets and other long-lived assets, take restructuring actions and reduce expenses in response to decreased sales or margins. The Company may not be able to adequately adjust its cost structure in a timely fashion, which may adversely impact its profitability. Uncertainty about economic conditions may increase foreign currency volatility in markets in which the Company transacts business, which may negatively impact the Company’s results. Economic weakness and geopolitical uncertainty also make it more difficult for the Company to manage inventory levels and/or collect customer receivables, which may result in provisions to create reserves, write-offs, reduced access to liquidity and higher financing costs.
The Company is monitoring the Brexit negotiations and developing contingency plans, including changes to its logistics operations and shipment routes and preparing for changes in trade facilitation regulations. While the specific terms and impact of Brexit are not yet known, Brexit may adversely impact the United Kingdom and/or the European Union and therefore may have an adverse effect on the Company’s trade operations and financial results.
The Company experiences significant competitive pressure, which may negatively impact its results.
The marketinvestment community’s expectations for the Company’s productsfuture results, dividends or share repurchases; and services is very competitive and subject to rapid technological advances, new market entrants, non-traditional competitors, changes in industry standards and changes in customer needs and
consumption models. Not only does the Company compete with other global distributors, it also competes for customers with regional distributors and some ofwhich are beyond the Company’s own suppliers that maintain direct sales efforts. In addition, as the Company expands its offeringscontrol.
Business and geographies, the Company may encounter increased competition from current or new competitors. The Company’s failure to maintain and enhance its competitive position could adversely affect its business and prospects. Furthermore, the Company’s efforts to compete in the marketplace could cause deterioration of gross profit margins and, thus, overall profitability.Operations Risks
The size of the Company’s competitors vary across market sectors, as do the resources the Company has allocated to the sectors and geographic areas in which it does business. Therefore, some competitors may have greater resources or a more extensive customer or supplier base than the Company has in one or more of its market sectors and geographic areas, which may result in the Company not being able to effectively compete in certain markets which could impact the Company’s profitability and prospects.
Changes in customer needs and consumption models could significantly affect the Company’s operating results.
Changes in customer needsproduct demands and consumption models may cause a decline in the Company’s billings, which would have a negative impact on the Company’s financial results. While the Company attempts to identify changes in market conditions as soon as possible, the dynamics of thesethe industries in which it operates make prediction of,it difficult to predict and timely reactionreact to such changes, difficult. Future including those relating to product capacity and lead times. Also, future
downturns or supply chain challenges, including in the semiconductor and embedded solutions industries, could adversely affect the Company’s relationships with its customers, operating results, and negatively impact the Company’s ability to maintain its current profitability levels. In addition,profitability.
Specifically, the semiconductor industry has historically experiencedexperiences periodic fluctuations in product supply and demand often(often associated with changes in economic conditions, technology, and manufacturing capacity.capacity) and suppliers may not adequately predict or meet customer demand. The Russia-Ukraine conflict and the COVID-19 pandemic have led, and may continue to lead, to shortages, extended lead times, and unpredictability in the supply of certain semiconductors and other electronic components. In reaction, customers may over order to ensure sufficient inventory, which, when the shortage lessens, may result in order cancellations and decreases. In cases where customers have entered into non-cancellable/ non-returnable orders, customers may not be able or willing to carry out the terms of the orders. The Company’s prices to customers depend on many factors, including product availability, supplier costs, and competitive pressures. In fiscal 2022, pricing to customers increased due to higher costs from suppliers, as well as higher freight and other costs. However, the Company may not be able to maintain higher prices to customers in the future. As product becomes more available, customer and competitive pressures may lower prices to customers, which could reduce the Company’s margins. In addition, the Company may be unable to increase prices to customers to offset higher internal costs, which could also reduce margins. During fiscal years 2019, 2018,2022, 2021, and 2017,2020, sales of semiconductors represented approximately 77%76%, 78%75%, and 78%76% of the Company'sCompany’s consolidated sales, respectively, and the Company’s sales closely follow the strength or weakness of the semiconductor industry. These conditions make it more difficult to manage the Company’s business and predict future performance.
Due to the Company’s increased online sales, system interruptions and delays that make its websites and services unavailable or slow to respond may reduce the attractiveness of its products and services to its customers. If the Company is unable to continually improve the efficiency of its systems, it could cause systems interruptions or delays and adversely affect the Company’s operating results.
FailureDisruptions to maintain or develop newkey supplier and customer relationships with key suppliers could adversely affect the Company’s sales.
One of the Company’s competitive strengths is the breadth and quality of the suppliers whose products the Company distributes. However, billings of products and services from one of the Company’sFor fiscal 2022, there were no Company suppliers Texas Instruments (“TI”),that accounted for approximately 10% or more of the Company’s consolidated billings in fiscal 2019. Management expects TI’s products and services to continue to account for roughly a similar percentage of the Company’s consolidated billings in fiscal 2020.billings. The Company’s contracts with its suppliers vary in duration and are generally terminable by either party at will upon notice. To the extent any primaryThe Company’s suppliers may terminate or significantly reduce their volume of business with the Company in the future, because of a product shortage, an unwillingness to do business with the Company, changes in strategy, or otherwise,otherwise.
Shortages of products or loss of a supplier may negatively affect the Company’s business and relationships with its customers, could be negatively affected because itsas customers depend on the Company’s distributiontimely delivery of technology hardware and software from the industry’s leading suppliers. In addition, shifts in suppliers’ strategy shiftsstrategies, or performance and delivery issues, may negatively affect the Company’s financial results. These conditions make it more difficult to manage the Company’s business and predict future performance. The competitive landscape has also experienced a consolidation among suppliers and capacity constraints, which could negatively impact the Company’s profitability and customer base.
Further, to the extent that any of the Company’sif key suppliers modify the terms of their contracts including,(including, without limitation, the terms regarding price protection, rights of return, order cancellation rights, delivery commitments, rebates, or other terms that protect or enhance the Company’s gross margins,margins), it could negatively affect the Company’s results of operations, financial condition, or liquidity.
Due to recent global shortages of semiconductors, some suppliers have increased the amount of non-cancellable/ non-returnable orders, which may limit the Company’s ability to adjust down its inventory levels in the event of market downturns. The Company may attempt to limit associated risks by passing such terms on to its customers, but this may not be possible.
The Company’s non-U.S. locations represent a significant portion of its sales and, consequently, the Company is exposedRisks related to risks associated with operating internationally that could adversely affect the Company’s operating results.international operations
During fiscal 2019, 2018,2022, 2021, and 20172020 approximately 75%77%, 76%78% and 72%75%, respectively, of the Company’s sales came from its operations outside the United States. As a result of the Company’s international operations, in particular those in emerging and developing economies, theThe Company’s operations are subject to a variety of risks that are specific to international operations, including, but not limited to, the following:
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● | | potential restrictions on the Company’s ability to repatriate funds from its foreign subsidiaries; |
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● | | foreign currency and interest rate fluctuations and the impact on the Company’s results of operations; fluctuations; |
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● | | compliancenon-compliance with foreign and domestic import and export regulations, data privacy regulations, business licensing requirements, environmental regulations, and anti-corruption laws, the failure of which could result in severe penalties including monetary fines and criminal proceedings and suspension of import or export privileges;
proceedings; |
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● | | non-compliance with foreign and domestic import and export regulations and adoption or expansion of trade restrictions, including technology transfer restrictions, additional license, permit or authorization requirements for shipments, specific company sanctions, new and higher duties, tariffs or surcharges, or other import/export controls, unilaterally or bilaterally; controls; |
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● | | complex and changing tax laws and regulations; |
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● | | regulatory requirements and prohibitions that differ between jurisdictions; |
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● | | economic and political instability, terrorism, military conflicts (including the uncertainty caused by Brexit)Russia-Ukraine conflict), terrorism and potential military conflicts or civilian unrest; |
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● | | fluctuations in freight costs (both inbound and outbound), limitations on shipping and receiving capacity, and other disruptions in the transportation and shipping infrastructure; |
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● | | natural disasters (including as a result of climate change), pandemics, and other public health concerns; crises; |
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● | | differing environmental regulations and employment practices and labor issues; and |
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● | | the risk of non-compliance with local laws.
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In addition to the cost of compliance, the potential criminal penalties for violations of import or export regulations and anti-corruption laws, by the Company or its third-party agents, create heightened risks for the Company’s international operations. In the event thatIf a governing regulatory body determines that the Company has violated applicable import or export regulations or anti-corruptionsuch laws, the Company could be fined significant sums, incur sizable legal defense costs, and/orhave its import or export capabilities could be restricted or denied, or have its inventories seized, which could have a material and adverse effect on the Company’s business. Additionally, allegations that the Company has violated a governmental regulationany such regulations may negatively impact the Company’s reputation, which may result in customers or suppliers being unwilling to do business with the Company. While the Company has adopted measures and controls designed to ensure compliance with these laws, the Company cannot be assured that such measures will be adequate or that its business will not be materially and adversely impacted in the event of an alleged violation.
Tariffs, trade restrictions, and sanctions resulting from international trade disputes, changes in trade policies, or military conflicts may adversely affect the Company’s sales and profitability. For example, the U.S. government imposed several trade policies, rules, and restrictions applicable to China and Hong Kong. In addition, in response to the Russian-Ukraine conflict, the United States, the European Union, the United Kingdom, and numerous other countries initiated a variety of sanctions, export restrictions, currency controls and other restrictions against Russia. The Chinese and Russian governments have responded in kind with restrictions, sanctions, and other measures. These actions have resulted in losses; increased costs, including increased costs of procuring certain products the Company purchases from its suppliers; shortages of materials and electronic components; increased expenses such as energy, fuel, and freight costs, which may not
be possible to pass on to customers; increased cyber security attacks; credit market disruptions; and inflation, which may impact the Company’s sales, customer demand for certain products, access to certain markets, and profits. In addition, increased operational expenses incurred in minimizing the number of products subject to the tariffs could adversely affect the Company’s operating profits. Neither U.S. tariffs nor any retaliatory tariffs imposed by other countries on U.S. goods have yet had a material impact, but any future actions or escalations that affect trade relations could materially affect the Company’s sales and results of operations.
The Company transacts sales, pays expenses, owns assets, and incurs liabilities in countries using currencies other than the U.S. Dollar. Because the Company’s consolidated financial statements are presented in U.S. Dollars, the Company must translate sales, incomesuch activities and expenses, as well as assets and liabilities,amounts into U.S. Dollars at exchange rates in effect during each reporting period. Therefore, increases or decreases in the exchange rates between the U.S. Dollar and other currencies affect the Company’s reported amounts of sales, operating income, and assets and liabilities denominated in foreign currencies. In addition, unexpected and dramatic changes in foreign currency exchange rates may negatively affect the Company’s earnings from those markets. While the Company may use derivative financial instruments to further reduce
its net exposure, to foreign currency exchange rate fluctuations there can be no assurance that fluctuations in foreign currency exchange rates will notmay materially affect the Company’s financial results. Further, foreign currency instability and disruptions in the credit and capital markets may increase credit risks for some of the Company’s customers and may impair its customers’ ability to repay existing obligations.
Recently, the U.S. government imposed new or higher tariffs on certain products imported into the U.S., and the Chinese government imposed new or higher tariffs on certain products imported into China, which have increased the costs of procuring certain products the Company purchases from its suppliers. The higher tariffs, along with any additional tariffs or trade restrictions that may be implemented by the U.S. or by other countries on U.S. goods in the future, may result in further increased costs and other related expenses. While the Company intends to reflect such increased costs in its selling prices, such price increases may impact the Company’s sales and customer demand for certain products. In addition, increased operational expenses incurred in minimizing the number of products subject to the tariffs could adversely affect the operating profits for certain of its business units. Neither such U.S. tariffs nor any retaliatory tariffs imposed by other countries on U.S. goods have yet had a significant impact, but there can be no assurance that future actions or escalations that affect trade relations will not occur or will not materially affect the Company’s sales and results of operations. To the extent that Company sales or profitability are negatively affected by any such tariffs or other trade actions, the Company’s business and results of operations may be materially adversely affected.
If the Company’s internalInternal information systems fail to function properly, or if the Company is unsuccessful in the implementation, integration or upgrade of information systems, its business operations could suffer.failures
The Company is dependentdepends on its information systems to facilitate theits day-to-day operations of the business and to produce timely, accurate, and reliable information on financial and operational results. Currently, the Company’s global operations are tracked with multiple information systems, including systems from acquired businesses, some of which are subject to ongoing IT projects designed to streamline or optimize the Company’s global information systems. These IT projects are extremely complex, in part because of a wide rangeranging processes, use of processes, the multiple legacy systems usedon-premise and cloud environments, and the Company’s business operations. There is no guarantee that theThe Company will be successfulmay not always succeed at all times in these efforts or that there will not be implementationefforts. Implementation or integration difficulties that willmay adversely affect the Company’s ability to complete business transactions and ensure accurate recording and reporting of financial data. In addition, the CompanyIT projects may be unable tonot achieve the expected efficiencies and cost savings, as a result of the IT projects, thuswhich could negatively impactingimpact the Company’s financial results. A failure of any of these information systems in a way described above(including due to power losses, computer and telecommunications failures, cyber security incidents, or manmade or natural disasters), or material difficulties in upgrading these information systems, could have an adverse effect on the Company’s business, internal controls, and reporting obligations under federal securities laws.
Logistics disruptions
The Company’s acquisition strategyglobal logistics services are operated through specialized and centralized distribution centers around the globe, some of which are outsourced. The Company also depends almost entirely on third-party transportation service providers to deliver products to its customers. A major interruption or disruption in service at one or more of its distribution centers for any reason (such as information technology upgrades and operating issues, warehouse modernization and relocation efforts, natural disasters, pandemics and other public health crises, geopolitical instability, military conflicts or terrorist attacks) or significant disruptions of services from the Company’s third-party transportation providers (such as transportation constraints due to labor shortages, disruptions to ports and other shipping infrastructures, border closures, other travel or health-related restrictions, and increased transportation costs related to gas price increases and shortages) could cause a delay in expected cost savings or an increase in expenses, which may not producebe possible to pass on to customers. In addition, as the expected benefits,Company continues to increase capacity at various distribution centers, it may experience operational challenges, increased costs, decreased efficiency, and customer delivery delays and failures. Such operational challenges could have an adverse impact on the Company’s business partners, and on the Company’s business, operations, financial performance, and reputation.
Data security and privacy threats
Threats to the Company’s data and information technology systems (including cyber security attacks such as phishing and ransomware) are becoming more frequent and sophisticated. Threat actors have successfully breached the Company’s systems and processes in various ways, and such cyber security breaches expose the Company to significant potential liability and reputational harm. Cyber security attacks have not yet materially impacted the Company’s data (including data about customers, suppliers, and employees) or the Company’s operations, financial condition, or data security, but future attacks could have a material impact. Threat actors seek unauthorized access to intellectual property, or confidential or proprietary information regarding the Company, its customers, its business partners, or its employees. They deploy malicious software programs that exploit security vulnerabilities, including ransomware designed to encrypt the Company’s files so an attacker may demand a ransom for restored access. They also seek to misdirect money, sabotage data and systems, takeover internal processes, and induce employees or other system users to disclose sensitive information, including login credentials. In addition, some Company employees continue to work from home on a full-time or hybrid basis, which increases the Company’s vulnerability to cyber and other information technology risks. Further, the Company’s business partners and service providers, such as suppliers, customers, and hosted solution providers, pose a security risk because their own security systems or infrastructure may become compromised.
The Company seeks to protect and secure its systems and information, prevent and detect evolving threats, and respond to threats as they occur. Measures taken include implementing and enhancing information security controls such as enterprise-wide firewalls, intrusion detection, endpoint protection, email security, disaster recovery, vulnerability management, and cyber security training for employees to enhance awareness of general security best practices, financial fraud, and phishing. Despite these efforts, the Company may not always be successful. Threat actors frequently change their techniques and, consequently, the Company may not always promptly detect the existence or scope of a security breach. As these types of threats grow and evolve, the Company may make further investments to protect its data and information technology infrastructure, which may impact the Company’s profitability. The Company’s insurance coverage for protecting against cyber-attacks may not be sufficient to cover all possible claims, and the Company may suffer losses that could have a material adverse effect on its business. As a global enterprise, the Company may be negatively impacted by existing and proposed laws and regulations, as well as government policies and practices, related to cybersecurity, data privacy, data localization, and data protection. Failure to comply with such requirements could have an adverse effect on the Company’s reputation, business, financial condition, and results of operations, as well as subject the Company to significant fines, litigation losses, third-party damages, and other liabilities.
Financial Risks
Inventory value decline
The electronic components and integrated products industries are subject to rapid technological change, new and enhanced products, changes in customer needs, and changes in industry standards and regulatory requirements, which can cause the Company’s inventory to decline in value or become obsolete. Regardless of the general economic environment, prices may decline due to a decrease in demand or an oversupply of products, which may increase the risk of declines in inventory value. Many of the Company’s suppliers offer certain protections from the loss in value of inventory (such as price protection and limited rights of return), but such policies may not fully compensate for the loss. Also, suppliers may not honor such agreements, some of which are subject to the supplier discretion. In addition, most Company sales are made pursuant to individual purchase orders, rather than through long-term sales contracts. Where there are contracts, such contracts are generally terminable at will upon notice. Unforeseen product developments, inventory value declines, or customer cancellations may adversely affect the Company’s business, results of operations.operations, financial condition, or liquidity.
Accounts receivable defaults
AvnetAccounts receivable are a significant portion of the Company’s working capital. If entities responsible for a significant amount of accounts receivable cease doing business, direct their business elsewhere, fail to pay, or delay payment, the Company’s business, results of operations, financial condition, or liquidity could be adversely affected. An economic or industry downturn could adversely affect the Company’s ability to collect receivables, which could result in longer payment cycles, increased collection costs, and defaults exceeding management’s expectations. A significant deterioration in the Company’s ability to collect accounts receivable in the United States could impact the cost or availability of financing under its accounts receivable securitization program.
Liquidity and capital resources constraints
The Company’s ability to satisfy its cash needs and implement its capital allocation strategy depends on its ability to generate cash from operations and to access the financial markets, both of which are subject to general economic, financial, competitive, legislative, regulatory, and other factors that are beyond the Company’s control. The Company may need to satisfy its cash needs through external financing. However, various factors affect external financing, including general market conditions and the Company’s debt ratings and operating results, and may not be available on acceptable terms or at all. An increase in the Company’s debt or deterioration of its operating results may cause a reduction in its debt ratings. Any such reduction could negatively impact the Company’s ability to obtain additional financing or renew existing financing, and could result in reduced credit limits, increased financing expenses, and additional restrictions and covenants. A reduction in its current debt rating may also negatively impact the Company’s working capital and impair its relationship with its customers and suppliers.
As of July 2, 2022, the Company had debt outstanding with financial institutions under various notes, secured borrowings, and committed and uncommitted lines of credit. The Company needs cash to pay debt principal and interest, and for general corporate purposes, such as funding its ongoing working capital and capital expenditure needs. Under certain of its credit facilities, the applicable interest rate and costs are based in part on the Company’s current debt rating. If its debt rating is reduced, higher interest rates and increased costs would result. Any material increase in the Company’s financing costs or loss of access to cost-effective financing could have an adverse effect on its profitability, results of operations, and cash flows.
Under some of its credit facilities, the Company is required to maintain certain specified financial ratios and pass certain financial tests. If the Company increases its level of debt or its operating results deteriorate, it may fail to meet these financial ratios or pass these tests, which may result in an event of default. In such an event, lenders may accelerate payment and the Company may be unable to continue to utilize these facilities. If the Company is unable to utilize these facilities or is required to repay debt earlier than management expected, it may not have sufficient cash available to make interest payments, to repay indebtedness, or for general corporate needs.
General economic or business conditions, both domestic and foreign, may be less favorable than management expects and could adversely impact the Company’s sales or its ability to collect receivables from its customers, which may impact access to the Company’s accounts receivable securitization program.
Financing covenants and restrictions may limit management discretion
The agreements governing the Company’s financing, including its credit facility, accounts receivable securitization program, and the indentures governing the Company’s outstanding notes, contain various covenants and restrictions that, in certain circumstances, limit the Company’s ability, and the ability of certain subsidiaries, to:
difficulties in their implementation, the Company’s business and operating results could be harmed. Additionally, the Company may be subject to sanctions or investigations by regulatory authorities, or the Company could fail to meet its reporting obligations, all of which could have an adverse effect on its business or the market price of the Company’s securities.
Acquisition expected benefits shortfall
The Company has made, and expects to continue to make, strategic acquisitions or investments in companies around the worldglobally to further its strategic objectives and support key business initiatives. Acquisitions and investments involve risks and uncertainties, some of which may differ from those associated with Avnet’sthe Company’s historical operations. TheSuch risks relating to such acquisitions and investments include, but are not limited to, risks relating to expanding into emerging markets and business areas, adding additional product lines and services, impacting existing customer and supplier relationships, incurring costs or liabilities associated with the companies acquired, incurring potential impairment charges on acquired goodwill and other intangible assets, and diverting management’s attention from existing business operations. As a result, the Company’s profitability may be negatively impacted. In addition, the Company may not be successful in integratingsuccessfully integrate the acquired businesses, or the integration may be more difficult, costly, or time-consuming than anticipated. Further, any litigation relating to a potential acquisition will result in an increase in the expenses associated with the acquisition or cause a delay in completing the acquisition, thereby impactingwhich may impact the Company’s profitability. The Company may experience disruptions that could, depending on the size of the acquisition, have an adverse effect on its business, especially where an
acquisition target may have pre-existing compliance issues or pre-existing deficiencies, or material weaknesses in internal controls over financial reporting. Furthermore, the Company may not realize all of the anticipated benefits from its acquisitions, which could adversely affect the Company’s financial performance.
Major disruptions to the Company’s logistics capability could have an adverse impact on the Company’s operations.Legal and Regulatory Risks
The Company’s global logistics services are operated through specialized, centralized or outsourced distribution centers around the globe. The Company also depends almost entirely on third-party transportation service providers for the delivery of products to its customers. A major interruption or disruption in service at one or more of its distribution centers for any reason (such as information technology upgrades and operating issues, warehouse modernization and relocation efforts, natural disasters, pandemics, or significant disruptions of services from the Company’s third-party transportation providers) could cause cancellations or delays in a significant number of shipments to customers and, as a result, could have an adverse impact on the Company’s business partners, and on the Company’s business, operations and financial performance.
If the Company sustains cyber-attacks or other privacy or data security incidents that result in security breaches, it could suffer a loss of sales and increased costs, exposure to significant liability, reputational harm and other negative consequences.
The Company’s information technology may be subject to cyber-attacks, security breaches or computer hacking. Experienced computer programmers and hackers may be able to penetrate the Company’s security controls and misappropriate or compromise sensitive personal, proprietary or confidential information, create system disruptions or cause shutdowns. They also may be able to develop and deploy malicious software programs that attack the Company’s systems or otherwise exploit any security vulnerabilities. The Company’s systems and the data stored on those systems may also be vulnerable to security incidents or security attacks, acts of vandalism or theft, coordinated attacks by activist entities, misplaced or lost data, human errors, or other similar events that could negatively affect the Company’s systems and its data, as well as the data of the Company’s business partners. Further, outside parties may attempt to fraudulently induce employees, customers or suppliers to disclose sensitive information in order to gain access to the Company’s data and information technology systems, otherwise known as phishing. Lastly, third parties, such as hosted solution providers, that provide services to the Company, could also be a source of security risk in the event of a failure of their own security systems and infrastructure.
The costs to eliminate or address the foregoing security threats and vulnerabilities before or after a cyber-incident could be significant. The Company’s remediation efforts may not be successful and could result in interruptions, delays or cessation of service, and loss of existing or potential suppliers or customers. In addition, breaches of the Company’s security measures and the unauthorized dissemination of sensitive personal, proprietary or confidential information about the Company, its business partners or other third parties could expose the Company to significant potential liability and reputational harm. As threats related to cyber-attacks develop and grow, the Company may also find it necessary to make further investments to protect its data and infrastructure, which may impact the Company’s profitability. Although the Company has insurance coverage for protecting against cyber-attacks, it may not be sufficient to cover all possible claims, and the Company may suffer losses that could have a material adverse effect on its business. As a global enterprise, the Company could also be negatively impacted by existing and proposed laws and regulations, as well as government policies and practices related to cybersecurity, data privacy, data localization and data protection.
Declines in the value of the Company’s inventory or unexpected order cancellations by the Company’s customers could adversely affect its business, results of operations, financial condition and liquidity.
The electronic components and integrated products industries are subject to rapid technological change, new and
enhanced products, changes in customer needs and changes in industry standards and regulatory requirements, which can contribute to a decline in value or obsolescence of inventory. Regardless of the general economic environment, it is possible that prices will decline due to a decrease in demand or an oversupply of products and, as a result of the price declines, there may be greater risk of declines in inventory value. Although it is the policy of many of the Company’s suppliers to offer certain protections from the loss in value of inventory (such as price protection and limited rights of return), the Company cannot be assured that such policies will fully compensate for the loss in value, or that the suppliers will choose to, or be able to, honor such agreements, some of which are not documented and, therefore, subject to the discretion of the supplier. In addition, the majority of the Company’s sales are made pursuant to individual purchase orders, rather than through long-term sales contracts. Where there is a contract, such contract is generally terminable at will upon notice. The Company cannot be assured that unforeseen new product developments, declines in the value of the Company’s inventory or unforeseen order cancellations by its customers will not adversely affect the Company’s business, results of operations, financial condition or liquidity.
Substantial defaults by the Company’s customers or suppliers on its accounts receivable or the loss of significant customers could have a significant negative impact on the Company’s business, results of operations, financial condition or liquidity.
A significant portion of the Company’s working capital consists of accounts receivable. If entities responsible for a significant amount of accounts receivable were to cease doing business, direct their business elsewhere, become insolvent or unable to pay the amount they owe the Company, or were to become unwilling or unable to make such payments in a timely manner, the Company’s business, results of operations, financial condition or liquidity could be adversely affected. An economic or industry downturn could adversely affect the collectability of these accounts receivable, which could result in longer payment cycles, increased collectionLegal proceedings costs and defaults in excess of management’s expectations. A significant deterioration in the Company’s ability to collect on accounts receivable in the United States could also impact the cost or availability of financing under its accounts receivable securitization program.damages
The Company may not have adequate or cost-effective liquidity or capital resources which could adversely affect the Company’s operations.
The Company’s ability to satisfy its cash needs and implement its capital allocation strategy depends on its ability to generate cash from operations and to access the financial markets, both of which are subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond the Company’s control.
The Company may need to satisfy its cash needs through external financing. However, external financing may not be available on acceptable terms or at all. As of June 29, 2019, Avnet had total debt outstanding of approximately $1.72 billion under various notes, secured borrowings and committed and uncommitted lines of credit with financial institutions. The Company needs cash to make interest payments on, and to repay, this indebtedness and for general corporate purposes, such as funding its ongoing working capital and capital expenditure needs. Under the terms of any external financing, the Company may incur higher than expected financing expenses and become subject to additional restrictions and covenants. Any material increase in the Company’s financing costs could have an adverse effect on its profitability.
Under certain of its credit facilities, the Company is required to maintain certain specified financial ratios and pass certain financial tests. If the Company fails to meet these financial ratios and/or pass these tests, it may be unable to continue to utilize these facilities. If the Company is unable to utilize these facilities, it may not have sufficient cash available to make interest payments, to repay indebtedness or for general corporate needs. General economic or business conditions, domestic and foreign, may be less favorable than management expects and could adversely impact the Company’s sales or its ability to collect receivables from its customers, which may impact access to the Company’s accounts receivable securitization program.
In order to be successful, the Company must attract, retain, train, motivate and develop key employees, and failure to do so could adversely impact the Company’s results and strategic initiatives.
Identifying, developing internally or hiring externally, training and retaining qualified employees are critical to the Company’s future, and competition for experienced employees in the Company’s industry can be intense. Changing demographics and labor work force trends may result in a loss of knowledge and skills as experienced workers leave the Company. In addition, as global opportunities and industry demand shifts, and as the Company expands its offerings, realignment, training and hiring of skilled personnel may not be sufficiently rapid. From time to time the Company has effected restructurings, which eliminate a number of positions. Even if such personnel are not directly affected by the restructuring effort, such terminations can have a negative impact on morale and the Company’s ability to attract and hire new qualified personnel in the future. If the Company loses existing qualified personnel or is unable to hire new qualified personnel, as needed, the Company’s business, financial condition and results of operations could be seriously harmed.
The agreements governing some of the Company’s financings contain various covenantsand restrictions that limit management’s discretion in operating the businessand could prevent management from engaging in some activities that may be beneficial to theCompany’s business.
The agreements governing the Company’s financing, including its credit facility, accounts receivable securitization program and the indentures governing the Company’s outstanding notes, contain various covenants and restrictions that, in certain circumstances, limit the Company’s ability, and the ability of certain subsidiaries, to:
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| | make restricted payments (including, under certain circumstances, paying dividends on common stock or redeeming or repurchasing common stock);
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| | make certain investments;
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| | merge, consolidate or transfer all or substantially all of the Company’s assets;
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| | incur additional debt; or
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| | engage in certain transactions with affiliates.
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As a result of these covenants and restrictions, the Company may be limited in the future in how it conducts its business and may be unable to raise additional debt, repurchase common stock, pay a dividend, compete effectively or make further investments.
The Company may become involved in legal proceedings that could cause it to incur substantial costs, divert management’s efforts or require it to pay substantial damages or licensing fees.
From time to time, the Company may become involved in legal proceedings, including government investigations, that arise out of the ordinary conduct of the Company’s business, including matters involving intellectual property rights, commercial matters, merger-related matters, product liability, and other actions. Legal proceedings could result in substantial costs and diversion of management’s efforts and other resources, and could have an adverse effect on the Company’s operations and business reputation. The Company may be obligated to indemnify and defend its customers if the products or services that the Company sells are alleged to infringe any third party’s intellectual property rights. While theThe Company may not be able to seekobtain supplier indemnification from its suppliers for itself and its customers against such claims, there is no assurance that it will be successful in realizingor such indemnification or thatmay not fully protect the Company will be fully protectedand its customers against such claims. However,Also, the Company is exposed to potential liability for technology and products that it develops for which it has no indemnification protections. If an infringement claim against the Company is successful, the Company may be required to pay damages or seek royalty or license arrangements, which may not be available on commercially reasonable terms. The Company may have to stop selling certain products or
services, which could affect its ability to compete effectively. In addition, the Company’s expanding business activities may include the assembly or manufacture of electronic component products and systems. Product defects, whether caused by a design, assembly, manufacture or component failure or error, or manufacturing processes not in compliance with applicable statutory and regulatory requirements, may result in product liability claims, product recalls, fines, and penalties. Product liability risks could be particularly significant with respect to aerospace, automotive, and medical applications because of the risk of serious harm to users of such products. Legal proceedings could result in substantial costs and diversion of management’s efforts and other resources and could have an adverse effect on the Company’s operations and business reputation.
Changes in tax rules and regulations, changes in interpretation of tax rules and regulations, changes in business performance or unfavorable assessments from tax audits could adversely affect the Company’s effective tax rates, deferred taxes, financial condition and results of operations.
As a multinational corporation, the Company is subject to the tax laws and regulations of the United States and many foreign jurisdictions. From time to time, regulations may be enacted that could adversely affect the Company’s tax positions. There can be no assurance that the Company’s cash flow, and in some cases the effective tax rate, will not be adversely affected by these potential changes in regulations or by changes in the interpretation of existing tax law and regulations.
On December 22, 2017, the U.S. federal government enacted tax legislation (the “Tax Cuts and Jobs Act” or the “Act”) which includes provisions to lower the corporate income tax rate, impose new taxes on certain foreign earnings, limit deductibility of certain U.S. costs and levy a one-time deemed repatriation tax on accumulated offshore earnings, among others. The Act is subject to interpretation and implementation guidance by both federal and state tax authorities, as well as amendments and technical corrections. Any or all of these could impact the Company unfavorably.
Many countries are adopting provisions to align their international tax rules with the Base Erosion and Profit Shifting Project, led by the Organisation for Economic Co-operation and Development, to standardize and modernize global corporate tax policy. These provisions, individually or as a whole, may negatively impact taxation of international business.
The tax laws and regulations of the various countries where the Company has operations are extremely complex and subject to varying interpretations. Although the Company believes that its historical tax positions are sound and consistent with applicable laws, regulations and existing precedent, there can be no assurance that these tax positions will not be challenged by relevant tax authorities or that the Company would be successful in defending against any such challenge.
The Company’s future income tax expense could also be favorably or adversely affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities and changes to its operating structure.
If the Company fails to maintain effective internal controls, it may not be able to report its financial results accurately or timely, or prevent or detect fraud, which could have an adverse effect on the Company’s business or the market price of the Company’s securities.
Effective internal controls over financial reporting are necessary for the Company to provide reliable financial reports and to effectively prevent or detect fraud. If the Company cannot provide reliable financial reports and effectively prevent or detect fraud, its brand and operating results could be harmed. Internal controls over financial reporting may not prevent or detect misstatements because such controls are inherently limited; such limitations include the possibility of human error, the circumvention or overriding of controls, or fraud. Therefore, even effective internal controls cannot provide absolute assurance with respect to the preparation and fair presentation of financial statements. In addition, if not properly maintained and updated, internal controls over financial reporting may become inadequate. If the Company fails
to maintain the adequacy of its internal controls, including any failure to implement required new or improved internal controls, or if the Company experiences difficulties in their implementation, the Company’s business and operating results could be harmed. Additionally, the Company may be subject to sanctions or investigations by regulatory authorities, and the Company could fail to meet its reporting obligations, all of which could have an adverse effect on its business or the market price of the Company’s securities.Environmental regulations non-compliance
Failure to comply with the requirements of environmental regulations could adversely affect the Company’s business.
The Company is subject to various federal, state, local, and foreign laws and regulations addressing environmental and other impacts from productindustrial processes, waste disposal, carbon emissions, use of hazardous materials in products and operations, recycling of products, at the end of their useful life and other related matters. While the Company strives to ensure it is in full compliancefully comply with all applicable regulations, certain of these regulations impose liability without fault. Additionally, the Company may be held responsible for the prior activities of an entity it acquired. Failure to comply with these regulations could result in substantial costs, fines, and civil or criminal sanctions, as well as third-party claims for property damage or personal injury. Further,Future environmental laws and regulations may become more stringent over time, imposing greater compliance costs, and increasing risks, penalties and penaltiesreputational harm associated with violations.
General Risk Factors
Negative impacts of a pandemic or other health crisis on economy, operations, and financial results
A pandemic, epidemic or other health related crisis could negatively impact the global economy, disrupt global supply chains, increase demand uncertainty, constrain workforce participation, disrupt logistics and distribution systems, and create significant volatility and disruption of financial markets, which could negatively impact the operations of the Company and its customers and suppliers. Such crises could also result in or heighten the risks of customer bankruptcies, customer delayed or defaulted payments, delays in product deliveries, restrictions on access to financial markets, and other risk factors described in the Company’s Annual Report. Due to the COVID-19 pandemic, even though the Company has not yet experienced any material disruption to its upstream supply chain and many of its distribution centers remain operational under business continuity plans, it has experienced increased logistics costs, product demand fluctuations, product pricing challenges, longer lead times, reduction in global distribution center utilization, and shipping delays. As the scope and duration of the COVID-19 outbreak is unknown and the extent of its economic impact continues to evolve globally, there is significant uncertainty related to the ultimate impact that it will have on the Company’s business, its employees, product supply and demand, results of operations, and financial condition, and to what extent the Company’s actions to mitigate such impacts will be successful and sufficient.
Economic and geopolitical uncertainty
The Company’s financial results, operations, and prospects depend significantly on worldwide economic and geopolitical conditions, the demand for its products and services, and the financial condition of its customers and suppliers. Economic weakness and geopolitical uncertainty (including the uncertainty caused by military conflicts; pandemics, epidemics, and other health related crises; and international trade disputes) have resulted, and may result in the future, in decreased sales, margins, and earnings. Economic weakness and geopolitical uncertainty may also lead the Company to impair assets (including goodwill, intangible assets, and other long-lived assets), implement restructuring actions, and reduce expenses in response to decreased sales or margins.
The Company may not be able to adequately adjust its cost structure in a timely fashion, which may adversely impact its profitability. Uncertainty about economic conditions may increase foreign currency volatility, which may negatively impact the Company’s results. Economic weakness and geopolitical uncertainty also make it more difficult for the Company to manage inventory levels (including when customers decrease orders, cancel existing orders, or are unable to fulfill their obligations under non-cancelable/ non-return orders) and collect customer receivables, which may result in provisions to create reserves, write-offs, reduced access to liquidity, higher financing costs and increased pressure on cash flows.
