Avnet 2005 Annual Report Download - page 36

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$425.7 million, of which the Company utilized $100.5 million for repayment of debt (see Liquidity and
Capital Resources Ì Financing Transactions).
During fiscal 2004, the Company generated $64.7 million of cash and cash equivalents from its operating
activities. A return to profitability in fiscal 2004 plus the impacts of non-cash and other reconciling items
combined to yield cash inflows for fiscal 2004 of $213.7 million. Partially offsetting this amount are cash flows
of $149.0 million used for the Company's working capital needs (excluding cash and cash equivalents) during
fiscal 2004. The primary driver of this outflow relate to the growth of receivables ($271.3 million) and
inventory ($240.5 million), net of cash flow generation from accounts payable ($285.4 million) and other
working capital items ($77.4 million). These trends in working capital are typical of an up-cycle in the
electronic components industry as growth in receivables and payables is driven by higher sales and purchasing
volumes. Additionally, inventory growth was also expected as the industry moved into an up-cycle, especially
in the electronic components sector where longer lead times from suppliers and increased demand from
customers typically result in the distributor carrying higher levels of inventory. As a result, EM grew inventory
in certain products to accommodate the growing levels in demand and in support of customer contractual
agreements to purchase certain inventory. Therefore, it is not uncommon to see cash outflows associated with
working capital when the Company is in the growth phase of an up-cycle. Despite the overall increase, the
Company continued to manage its working capital utilization and efficiency. Within EM, where the majority
of the inventory increases took place, fiscal 2004 inventory turns improved by 16% over fiscal 2003. This
improvement in turns is driven by a combination of the increased sales and the buildup of inventory only in
high demand, and thus, higher volume product lines.
Since the industry and economic downturn commenced in fiscal 2001, the Company has significantly
reduced its capital expenditures as well as its acquisition and investment activity. However, during fiscal 2004,
the Company completed a contingent purchase price payment associated with its January 2000 acquisition of
84% of the stock of Eurotronics B.V., which went to market as SEI. Pursuant to the terms of the share
purchase agreement, in fiscal 2004, Avnet paid $48.9 million to former shareholders of Eurotronics B.V. in
final settlement of contingent consideration related to this acquisition. This coupled with other, less significant
contingent purchase price payments and the acquisition of a minority interest in one of the Company's foreign
subsidiaries resulted in total cash outflow for acquisitions and investments of $50.5 million during fiscal 2004.
These outflows for investing activities, offset in part by the favorable impact of foreign currency on cash and
cash equivalents and other financing activities, yielded a net free cash flow of $13.5 million. This net free cash
flow, coupled with the cash usage for the Company's retirement, both early and at maturity, of certain of the
Company's debt net of proceeds from new debt issued during fiscal 2004 (see Liquidity and Capital
Resources Ì Financing Transactions), resulted in a net decrease in cash during fiscal 2004 of $82.8 million.
In fiscal 2003, cash flow of $169.5 million was generated from the combination of the Company's net loss
and non-cash and other reconciling items, and $482.4 million was generated by reductions in working capital
(excluding cash and cash equivalents), thus generating net cash flow from operations of $651.9 million. The
positive cash flow generated from working capital reductions resulted from the Company's continued efforts to
improve its asset utilization and efficiency, primarily through reductions of receivables (cash inflow of
$140.7 million) and inventories (cash inflow of $387.1 million), in what continued to be a stable but weak
electronic components and computer products distribution industry during fiscal 2003. In addition to cash flow
from operating activities in fiscal 2003, $5.1 million was needed for other business operations including
purchases of property, plant and equipment, net of cash proceeds from sales of property, plant and equipment,
and cash generated from other items, including the impact of foreign currency exchange rates on the
Company's cash and cash equivalents. The Company also used $9.2 million for acquisitions of operations and
investments (primarily contingent purchase price payments) during fiscal 2003, to yield net free cash flow in
fiscal 2003 of $637.6 million. A total of $401.4 million of this free cash flow was used to reduce the Company's
borrowings under its accounts receivable securitization program in addition to the retirement of certain of the
Company's long-term debt, net of proceeds from new debt issued during fiscal 2003, resulting in a
$236.2 million increase in cash and cash equivalents during fiscal 2003.
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