SEC Filing | Avnet, Inc.

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended January 2, 2021

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission File #1-4224

AVNET, INC.

(Exact name of registrant as specified in its charter)


New York				11-1890605
(State or other jurisdiction				(IRS Employer
of incorporation or organization)				Identification No.)


2211 South 47th Street, Phoenix, Arizona		85034
(Address of principal executive offices)		(Zip Code)

(480) 643-2000

(Registrant’s telephone number, including area code.)

N/A

(Former name, former address and former fiscal year, if changed since last report.)

Securities registered pursuant to Section 12(b) of the Act:


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

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 ☑ 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 (§232.405 of this chapter) 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 ☐
Non-accelerated Filer ☐		Smaller Reporting Company ☐
Emerging 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

As of January 20, 2021, the total number of shares outstanding of the registrant’s Common Stock was 99,455,396 shares, net of treasury shares.

Table of Contents

AVNET, INC. AND SUBSIDIARIES

INDEX

	Page No.
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets at January 2, 2021 and June 27, 2020	2

Consolidated Statements of Operations for the second quarters and six months ended January 2, 2021 and December 28, 2019	3

Consolidated Statements of Comprehensive Income for the second quarters and six months ended January 2, 2021 and December 28, 2019	4

Consolidated Statements of Shareholders’ Equity for the second quarters and six months ended January 2, 2021 and December 28, 2019	5

Consolidated Statements of Cash Flows for the six months ended January 2, 2021 and December 28, 2019	6

Notes to Consolidated Financial Statements	7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3. Quantitative and Qualitative Disclosures About Market Risk	29

Item 4. Controls and Procedures	29

PART II. OTHER INFORMATION

Item 1. Legal Proceedings	30

Item 1A. Risk Factors	30

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	30

Item 6. Exhibits	31

Signature Page	32

Table of Contents

PART I

FINANCIAL INFORMATION

Item 1.

Financial Statements

AVNET, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)


	January 2,		June 27,
	2021		2020

	(Thousands, except share
	amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	376,333	$	477,038
Receivables		3,105,317		2,928,386
Inventories		2,816,421		2,731,988
Prepaid and other current assets		156,375		191,394
Total current assets		6,454,446		6,328,806
Property, plant and equipment, net		403,270		404,607
Goodwill		834,795		773,734
Intangible assets, net		38,812		65,437
Operating lease assets		284,886		275,917
Other assets		248,104		256,696
Total assets	$	8,264,313	$	8,105,197
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term debt	$	311,800	$	51
Accounts payable		1,935,661		1,754,078
Accrued expenses and other		520,463		472,924
Short-term operating lease liabilities		58,400		53,313
Total current liabilities		2,826,324		2,280,366
Long-term debt		895,639		1,424,791
Long-term operating lease liabilities		259,599		253,719
Other liabilities		372,018		419,923
Total liabilities		4,353,580		4,378,799
Commitments and contingencies (Note 9)
Shareholders’ equity:
Common stock $1.00 par; authorized 300,000,000 shares; issued 98,861,933 shares and 98,792,542 shares, respectively		98,862		98,793
Additional paid-in capital		1,610,145		1,594,140
Retained earnings		2,366,127		2,421,845
Accumulated other comprehensive loss		(164,401)		(388,380)
Total shareholders’ equity		3,910,733		3,726,398
Total liabilities and shareholders’ equity	$	8,264,313	$	8,105,197

See notes to consolidated financial statements.

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AVNET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Second Quarters Ended				Six Months Ended
	January 2,		December 28,		January 2,		December 28,
	2021		2019		2021		2019

	(Thousands, except per share amounts)
Sales	$	4,668,172	$	4,534,806	$	9,391,232	$	9,164,814
Cost of sales		4,156,919		4,009,193		8,363,899		8,095,362
Gross profit		511,253		525,613		1,027,333		1,069,452
Selling, general and administrative expenses		442,084		464,873		913,241		921,377
Restructuring, integration and other expenses		11,948		14,265		38,369		38,863
Operating income		57,221		46,475		75,723		109,212
Other (expense) income, net		(1,333)		(1,963)		(20,831)		2,969
Interest and other financing expenses, net		(21,485)		(33,904)		(43,787)		(67,535)
Income before taxes		34,403		10,608		11,105		44,646
Income tax expense (benefit)		15,240		6,940		10,831		(774)
Net income	$	19,163	$	3,668	$	274	$	45,420

Earnings per share:
Basic	$	0.19	$	0.04	$	0.00	$	0.45
Diluted	$	0.19	$	0.04	$	0.00	$	0.44

Shares used to compute earnings per share:
Basic		98,937		100,431		98,917		101,781
Diluted		99,932		101,302		99,897		102,839
Cash dividends paid per common share	$	0.21	$	0.21	$	0.42	$	0.42

See notes to consolidated financial statements.

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AVNET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Second Quarters Ended				Six Months Ended
	January 2,		December 28,		January 2,		December 28,
	2021		2019		2021		2019

	(Thousands)
Net income	$	19,163	$	3,668	$	274	$	45,420
Other comprehensive income (loss), net of tax:
Foreign currency translation and other		120,000		93,186		210,373		(8,960)
Pension adjustments, net		3,983		3,168		13,606		6,981
Total comprehensive income	$	143,146	$	100,022	$	224,253	$	43,441

See notes to consolidated financial statements.

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AVNET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)


									Accumulated
	Common		Common		Additional				Other		Total
	Stock-		Stock-		Paid-In		Retained		Comprehensive		Shareholders’
	Shares		Amount		Capital		Earnings		(Loss) Income		Equity

	(Thousands)
Balance, June 27, 2020		98,793	$	98,793	$	1,594,140	$	2,421,845	$	(388,380)	$	3,726,398
Net loss		—		—		—		(18,889)		—		(18,889)
Translation adjustments and other		—		—		—		—		90,373		90,373
Pension liability adjustments, net		—		—		—		—		9,623		9,623
Cash dividends		—		—		—		(20,756)		—		(20,756)
Effects of new accounting principles, net		—		—		—		(14,480)		—		(14,480)
Stock-based compensation		51		51		5,191		—		—		5,242
Balance, October 3, 2020		98,844	$	98,844	$	1,599,331	$	2,367,720	$	(288,384)	$	3,777,511
Net income		—		—		—		19,163		—		19,163
Translation adjustments and other		—		—		—		—		120,000		120,000
Pension liability adjustments, net		—		—		—		—		3,983		3,983
Cash dividends		—		—		—		(20,756)		—		(20,756)
Stock-based compensation		18		18		10,814		—		—		10,832
Balance, January 2, 2021		98,862	$	98,862	$	1,610,145	$	2,366,127	$	(164,401)	$	3,910,733


									Accumulated
	Common		Common		Additional				Other		Total
	Stock-		Stock-		Paid-In		Retained		Comprehensive		Shareholders’
	Shares		Amount		Capital		Earnings		(Loss) Income		Equity

	(Thousands)
Balance, June 29, 2019		104,038	$	104,038	$	1,573,005	$	2,767,469	$	(304,039)	$	4,140,473
Net income		—		—		—		41,752		—		41,752
Translation adjustments and other		—		—		—		—		(102,146)		(102,146)
Pension liability adjustments, net		—		—		—		—		3,813		3,813
Cash dividends		—		—		—		(21,451)		—		(21,451)
Repurchases of common stock		(2,631)		(2,631)		—		(109,504)		—		(112,135)
Stock-based compensation		64		64		7,701		—		—		7,765
Balance, September 28, 2019		101,471	$	101,471	$	1,580,706	$	2,678,266	$	(402,372)	$	3,958,071
Net income		—		—		—		3,668		—		3,668
Translation adjustments and other		—		—		—		—		93,186		93,186
Pension liability adjustments, net		—		—		—		—		3,168		3,168
Cash dividends		—		—		—		(20,975)		—		(20,975)
Repurchases of common stock		(2,135)		(2,135)		—		(85,423)		—		(87,558)
Stock-based compensation		13		13		7,760		—		—		7,773
Balance, December 28, 2019		99,349	$	99,349	$	1,588,466	$	2,575,536	$	(306,018)	$	3,957,333

See notes to consolidated financial statements.

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AVNET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six Months Ended
	January 2,		December 28,
	2021		2019

	(Thousands)
Cash flows from operating activities:
Net income	$	274	$	45,420

Non-cash and other reconciling items:
Depreciation		44,002		49,822
Amortization		30,474		41,257
Amortization of operating lease assets		28,111		31,354
Deferred income taxes		(311)		(15,518)
Stock-based compensation		15,331		14,503
Asset impairment expense		15,166		—
Other, net		17,004		22,157
Changes in (net of effects from businesses acquired and divested):
Receivables		(94,831)		185,598
Inventories		51,185		94,182
Accounts payable		130,768		(52,711)
Accrued expenses and other, net		(29,779)		(71,858)
Net cash flows provided by operating activities		207,394		344,206

Cash flows from financing activities:
Borrowings (repayments) under accounts receivable securitization, net		11,800		(35,400)
Repayments under senior unsecured credit facility, net		(239,430)		(1,376)
Repayments under bank credit facilities and other debt, net		(1,480)		(1,301)
Repurchases of common stock		—		(198,630)
Dividends paid on common stock		(41,512)		(42,426)
Other, net		(2,301)		(4,887)
Net cash flows used for financing activities		(272,923)		(284,020)

Cash flows from investing activities:
Purchases of property, plant and equipment		(30,022)		(44,252)
Acquisitions of assets		(18,371)		(51,509)
Other, net		725		(13,098)
Net cash flows used for investing activities		(47,668)		(108,859)

Effect of currency exchange rate changes on cash and cash equivalents		12,492		(8,622)

Cash and cash equivalents:
— decrease		(100,705)		(57,295)
— at beginning of period		477,038		546,105
— at end of period	$	376,333	$	488,810

See notes to consolidated financial statements.

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AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. Basis of presentation and new accounting pronouncements

In the opinion of management, the accompanying unaudited interim consolidated financial statements contain all adjustments necessary to present fairly Avnet, Inc. and its consolidated subsidiaries’ (collectively, the “Company” or “Avnet”) financial position, results of operations, comprehensive income and cash flows. All such adjustments are of a normal recurring nature.

The preparation of financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements. Actual results may differ from these estimates and assumptions.

Interim results of operations are not necessarily indicative of the results to be expected for the full fiscal year. The information included in this Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 27, 2020.

Certain reclassifications have been made in prior periods to conform to the current period presentation.

Fiscal year

The Company operates on a “52/53 week” fiscal year, and fiscal 2021 contains 53 weeks compared to fiscal 2020, which contained 52 weeks. As a result, the first six months of fiscal 2021 ended January 2, 2021 contained 27 weeks compared to the first six months of fiscal 2020 ended December 28, 2019, which contained 26 weeks.

Recently adopted accounting pronouncements

In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other— Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force) ("ASU No. 2018-15"). ASU No. 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop internal-use software. The adoption of ASU No. 2018-15 in the first quarter of fiscal 2021 did not have a material impact on the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU No. 2016-13") and also issued subsequent amendments to the initial guidance: ASU No. 2018-19, ASU No. 2019-04, ASU No. 2019-05, and ASU No. 2019-11 (collectively, Topic 326). Topic 326 revises the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. On June 28, 2020, the Company adopted Topic 326 using a modified retrospective approach with a cumulative effect adjustment to the opening balance of retained earnings, which increased the allowance for credit losses by $17.2 million ($14.5 million, net of tax of $2.7 million). Increases in the allowance for credit losses relate to the required change from an incurred loss model to an expected loss model, and the related change in timing of loss recognition where an allowance for credit losses is now applied at the time the asset, or pool of assets, is recognized.

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AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Recently issued accounting pronouncements

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU No. 2020-04”), which provides optional guidance to ease the potential burden in accounting for reference rate reform on financial reporting. The new guidance provides optional expedients and exceptions for applying generally accepted accounting principles to transactions affected by reference rate reform if certain criteria are met. This guidance is effective upon issuance through December 31, 2022. The Company is currently evaluating the potential effects of adopting the provisions of ASU No. 2020-04.

In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes (Topic 740), (“ASU No. 2019-12”) which removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU No. 2019-12 will be effective for the Company in the first quarter of fiscal 2022, and early adoption is permitted. Depending on the amendment, adoption may be applied on a retrospective, modified retrospective or prospective basis. The Company is currently evaluating the potential effects of adopting the provisions of ASU No. 2019-12.

In August 2018, the FASB issued ASU No. 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans (“ASU No. 2018-14”). The new guidance modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans, including removing certain previous disclosure requirements, adding certain new disclosure requirements, and clarifying certain other disclosure requirements. ASU No. 2018-14 will be effective for the Company in the first quarter of fiscal 2022, and early adoption is permitted. The Company’s planned adoption of ASU No. 2018-14 is not expected to have a material impact on the Company’s consolidated financial statements.

2. Summary of significant accounting policies

Except for the changes below, no material changes have been made to the Company’s significant accounting policies as disclosed in Note 1, Summary of Significant Accounting Policies, in its Annual Report on Form 10-K filed on August 14, 2020 for the year ended June 27, 2020.

Receivables – Receivables, predominately comprised of trade accounts and notes receivable, 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.

3. Acquisitions

In the first quarter of fiscal 2021, the Company completed an asset acquisition. The impact of this asset acquisition was not material to the Company’s consolidated balance sheets or statements of operations.

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AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

4. Receivables

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


	January 2,		June 27,
	2021		2020

	(Thousands)
Receivables	$	3,190,767	$	2,993,404
Allowance for Credit Losses		(85,450)		(65,018)

The Company had the following activity in the allowance for credit losses during the first six months of fiscal 2021:


	January 2,
	2021
	(Thousands)
Balance at June 27, 2020	$	65,018
Effect of adoption of ASU No. 2016-12 (Note 1)		17,205
Credit Loss Provision		4,438
Credit Loss Recoveries		(283)
Write offs		(4,621)
Foreign Currency Effect and Other		3,693
Balance at January 2, 2021	$	85,450

5. Goodwill and intangible assets

Goodwill

The following table presents the change in goodwill by reportable segment for the six months ended January 2, 2021.


	Electronic
	Components		Farnell		Total

	(Thousands)
Carrying value at June 27, 2020 ⁽¹⁾	$	297,836	$	475,898	$	773,734
Foreign currency translation		14,844		46,217		61,061
Carrying value at January 2, 2021 ⁽¹⁾	$	312,680	$	522,115	$	834,795

(1)	Includes accumulated impairment of $1,045,110 from fiscal 2009, $181,440 from fiscal 2018, $137,396 from fiscal 2019 and $118,731 from fiscal 2020.

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. During the second quarter of fiscal 2021, the Company concluded that an interim goodwill impairment test was not required.

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AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Intangible Assets

The following table presents the Company’s acquired intangible assets at January 2, 2021 and June 27, 2020, respectively.


	January 2, 2021						June 27, 2020
	Acquired		Accumulated		Net Book		Acquired		Accumulated		Net Book
	Amount		Amortization		Value		Amount⁽¹⁾		Amortization		Value

	(Thousands)
Customer related	$	325,799	$	(312,345)	$	13,454	$	300,937	$	(266,759)	$	34,178
Trade name		56,716		(40,161)		16,555		51,698		(32,493)		19,205
Technology and other		58,417		(49,614)		8,803		53,641		(41,587)		12,054
	$	440,932	$	(402,120)	$	38,812	$	406,276	$	(340,839)	$	65,437

⁽¹⁾Acquired amount reduced by impairment of $17,473 from fiscal 2020.

Intangible asset amortization expense was $10.4 million and $21.3 million for the second quarters of fiscal 2021 and 2020, respectively, and $30.5 million and $41.3 million for the first six months of fiscal 2021 and 2020, respectively. Intangible assets have a weighted average remaining useful life of approximately 3 years. The following table presents the estimated future amortization expense for the remainder of fiscal 2021 and the next five fiscal years (in thousands):


Fiscal Year
Remainder of fiscal 2021	$	10,440
2022		15,323
2023		6,607
2024		3,130
2025		1,472
2026		1,472
Thereafter		368
Total	$	38,812

6. Debt

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


	January 2,		June 27,		January 2,		June 27,
	2021		2020		2021		2020

	Interest Rate				Carrying Balance
Bank credit facilities and other	—		5.69	%	$	—	$	51
Accounts receivable securitization program	1.20	%	—			11,800		—
Public notes due December 2021	3.75	%	—			300,000		—
Short-term debt					$	311,800	$	51

Bank credit facilities and other consists primarily of various committed and uncommitted lines of credit and other forms of bank debt with financial institutions utilized primarily to support the working capital requirements of the Company including its foreign operations.

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AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

In July 2020, the Company amended and extended for one year, its trade accounts receivable securitization program (the “Securitization Program”) in the United States with a group of financial institutions to allow 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 up to a maximum of $450 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 $661.2 million and $703.8 million at January 2, 2021 and June 27, 2020, respectively. The Securitization Program contains certain covenants relating to the quality of the receivables sold. Interest on borrowings is calculated using a one-month LIBOR rate plus a spread of 1.05%. The facility fee on the unused balance of the facility is up to 0.40%.

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


	January 2,		June 27,		January 2,		June 27,
	2021		2020		2021		2020

	Interest Rate				Carrying Balance
Revolving credit facilities:
Credit Facility (due June 2023)	—		1.28	%	$	—	$	230,000
Public notes due:
December 2021	—		3.75	%		—		300,000
December 2022	4.88	%	4.88	%		350,000		350,000
April 2026	4.63	%	4.63	%		550,000		550,000
Other long-term debt	1.17	%	1.19	%		1,522		1,491
Long-term debt before discount and debt issuance costs						901,522		1,431,491
Discount and debt issuance costs – unamortized						(5,883)		(6,700)
Long-term debt					$	895,639	$	1,424,791

The Company has a five-year $1.25 billion senior unsecured revolving credit facility (the “Credit Facility”) with a syndicate of banks, consisting 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, which expires in June 2023. Subject to certain conditions, the Credit Facility may be increased up to $1.50 billion. 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 financial covenants, which were amended during the first quarter of fiscal 2021, requiring the Company to maintain minimum interest coverage and leverage ratios, which the Company was in compliance with as of January 2, 2021 and June 27, 2020.

As of January 2, 2021 and June 27, 2020, there were $1.3 million and $1.6 million, respectively, in letters of credit issued under the Credit Facility.

As of January 2, 2021, the carrying value and fair value of the Company’s total debt was $1.21 billion and $1.32 billion, respectively. At June 27, 2020, the carrying value and fair value of the Company’s total debt was $1.42 billion and $1.52 billion, respectively. Fair value for the public notes was estimated based upon quoted market prices 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.

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AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

7. 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 17 years. The Company’s equipment leases are primarily for automobiles and equipment, and are not material to the consolidated financial statements.

The components of lease cost related to the Company’s operating leases were as follows (in thousands):


	Second Quarters Ended				Six Months Ended
	January 2,		December 28,		January 2,		December 28,
	2021		2019		2021		2019
Operating lease cost	$	18,095	$	19,574	$	36,497	$	38,376
Variable lease cost		5,423		4,829		11,711		10,097
Total lease cost	$	23,518	$	24,403	$	48,208	$	48,473

Future minimum operating lease payments as of January 2, 2021 are as follows (in thousands):


Fiscal Year
Remainder of fiscal 2021	$	35,838
2022		62,146
2023		52,673
2024		38,642
2025		32,572
Thereafter		162,937
Total future operating lease payments		384,808
Total imputed interest on operating lease liabilities		(66,809)
Total operating lease liabilities	$	317,999

Other information pertaining to operating leases as of January 2, 2021 consists of the following:


Operating Lease Term and Discount Rate
Weighted-average remaining lease term in years	9.3
Weighted-average discount rate	3.8	%

Supplemental cash flow information related to the Company’s operating leases was as follows (in thousands):


	Six Months Ended
	January 2,		December 28,
	2021		2019
Supplemental Cash Flow Information:
Cash paid for operating lease liabilities	$	29,157	$	33,044
Operating lease assets obtained from new operating lease liabilities		28,346		18,560

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AVNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

8. Derivative financial instruments

Many of the Company’s subsidiaries purchase and sell products in currencies other than their functional currencies. This subjects the Company to the risks associated with fluctuations in foreign currency exchange rates. The Company reduces this risk by utilizing natural hedging (e.g., offsetting receivables and payables in the same foreign currency) as well as by creating offsetting positions through the use of derivative financial instruments, primarily forward foreign exchange contracts typically with maturities of less than 60 days (“economic hedges”), 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 through the consolidated statements of operations primarily within “Other (expense) income, net.” The fair value of forward foreign exchange contracts, which are based upon Level 2 criteria under the ASC 820 fair value hierarchy, are classified in the captions “Prepaid and other current assets” or “Accrued expenses and other,” as applicable, in the accompanying consolidated balance sheets as of January 2, 2021 and June 27, 2020. 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.

The Company generally does not hedge its investments in its foreign operations. The Company does not enter into derivative financial instruments for trading or speculative purposes and monitors the financial stability and credit standing of its counterparties.

The Company’s 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 Asia foreign currencies.

The fair values of forward foreign currency exchange contracts not receiving hedge accounting treatment recorded in the Company’s consolidated balance sheets are as follows: