Avnet 2002 Annual Report Download - page 41

Company also has available to it certain vendor Ñnancing programs for its payables, creating additional
Öexibility for short-term Ñnancing needs.
Covenants and Conditions
The multi-year and 364-day credit agreements described above contain certain covenants with various
limitations on total debt, capital expenditures and investments and require that net worth, interest coverage
and other ratios be maintained at speciÑc levels. Similarly, the receivable securitization program contains
certain covenants relating to the quality of the receivables sold under the program. If these conditions are not
met, the Company may not be able to borrow any additional funds under these facilities and the lenders
generally have the right to accelerate any amounts outstanding. Circumstances that could aÅect the
Company's ability to meet the required Ñnancial covenants and conditions in its various Ñnancing arrange-
ments include the duration and depth of the current economic downturn and the impact on proÑtability,
perceived Ñnancial strength or weakness by credit rating agencies and various other economic, market and
industry factors. The Company was in compliance with all covenants for these facilities at June 28, 2002.
The Company is also required to maintain minimum senior unsecured credit ratings in order to continue
using the receivable securitization program in its present form. If the Company's credit rating is reduced below
Baa3 and BBB¿ by Moody's Investors Services, Inc. and Standard and Poor's, respectively, the Company
may be in default under the securitization program. The Company is in compliance with these minimum
unsecured credit ratings currently and as of June 28, 2002. However, in the event of a continued economic
downturn or a weaker than expected recovery, the Company's prospects of a lowered credit rating on its senior
unsecured debt would become more likely. Both the syndicated bank facility and the securitization program
contain certain standard cross-default provisions, meaning that if there is a default under one facility, such as a
covenant breach or a credit ratings trigger, that default can also trigger a default under the other facility. In the
case of any default, the Company would either have to negotiate with the lenders to modify the facility or pay
oÅ all amounts outstanding, terminate the facility and, if necessary, seek alternative Ñnancing.
Under its current Ñnancing arrangements the Company has an aggregate of approximately $907.8 million
in additional borrowing capacity at June 28, 2002. Approximately $488.7 million of that capacity expires in
October 2002 under its current 364-day facility and it is management's intention to terminate this facility by
its expiration date. Management believes its current borrowing capacity, even after termination of the 364-day
facility, and its ability to generate cash from normal operations are suÇcient to meet its projected working
capital requirements.
Shareholders' Equity
Shareholders' equity at June 28, 2002 was $1.805 billion as compared to $2.375 billion the prior year,
down 24.0%. This decline was in large part due to the impact on retained earnings of the Company's net loss,
including all special charges and the cumulative eÅect of change in accounting principle related to goodwill
impairment discussed previously.
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