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Table of Contents

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

1

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.

2

Table of Contents

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.

3

Table of Contents

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.

4

Table of Contents

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.

6

Table of Contents

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.

11

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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

12

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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: