Avnet 2005 Annual Report Download - page 38

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the Debentures on March 15, 2009, 2014, 2019, 2024 and 2029, or upon a fundamental change, as defined, at
the Debentures' full principal amount plus accrued and unpaid interest, if any.
The proceeds from the issuance of the Debentures, net of underwriting fees, were $292.5 million. The
Company used these proceeds to fund the tender and purchase of $273.4 million of its 7
7
/
8
% Notes due
February 15, 2005. The Company incurred debt extinguishment costs of $16.4 million pre-tax, $14.2 million
after-tax and $0.12 per share on a diluted basis during fiscal 2004 related primarily to premiums and other
transaction costs associated with this tender and early redemption.
The Company has an unsecured, three-year $350.0 million credit facility with a syndicate of banks (the
""Credit Facility''), which expires in June 2007. The Company may select from various interest rate options,
currencies and maturities under the Credit Facility. The Credit Facility contains certain covenants, all of
which the Company was in compliance with as of July 2, 2005. There were no borrowings under the Credit
Facility at July 2, 2005 or July 3, 2004.
In March 2004, the Company also repaid in cash its $100.0 million of 6
7
/
8
% Notes that matured on
March 15, 2004.
At July 2, 2005, the Company had two interest rate swaps with a total notional amount of $400.0 million
in order to hedge the change in fair value of the 8% Notes related to fluctuations in interest rates. These
contracts were classified as fair value hedges and were to mature in November 2006. The interest rate swaps
modified the Company's interest rate exposure by effectively converting the fixed rate on the 8% Notes to a
floating rate (6.4% at July 2, 2005) based on three-month U.S. LIBOR plus a spread through their maturities.
Upon launching the tender offer to purchase up to $250.0 million of the 8% Notes in August 2005, the
Company terminated the $400.0 million notional amount of interest rate swaps.
The Company has three additional interest rate swaps with a total notional amount of $300.0 million in
order to hedge the change in fair market value of the 9
3
/
4
% Notes due February 15, 2008 (the ""9
3
/
4
% Notes'')
related to fluctuations in interest rates. These hedges are classified as fair value hedges and mature in
February 2008. These interest rate swaps modify the Company's interest rate exposure by effectively
converting the fixed rate on the 9
3
/
4
% Notes to a floating rate (9.7% at July 2, 2005) based on three-month
U.S. LIBOR plus a spread through their maturities.
The hedged fixed rate debt and the interest rate swaps are adjusted to current market values through
interest expense in the consolidated statements of operations included in Item 15 of this Report. The
Company accounts for the hedges using the shortcut method as defined under Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by
Statement of Financial Accounting Standards No. 138, Accounting for Certain Derivative Instruments and
Hedging Activities. Due to the effectiveness of the hedges since inception, the market value adjustments for
the hedged debt and the interest rate swaps directly offset one another.
In addition to its primary financing arrangements, the Company has several small lines of credit in
various locations to fund the short-term working capital, foreign exchange, overdraft and letter of credit needs
of its wholly owned subsidiaries in Europe and Asia. Avnet generally guarantees its subsidiaries' debt under
these facilities.
Off-Balance Sheet Arrangements
At July 2, 2005, the Company had a $350.0 million accounts receivable securitization program (the
""Program'') with two financial institutions whereby it was able to sell, on a revolving basis, an undivided
interest in a pool of its trade accounts receivable. Under the Program, the Company was able to sell
receivables in securitization transactions and retain a subordinated interest and servicing rights to those
receivables. Receivables sold under the Program were sold without legal recourse to third party conduits
through a wholly owned bankruptcy-remote special purpose entity that is consolidated for financial reporting
purposes. At July 2, 2005, the Program qualified for sale treatment under Statement of Financial Accounting
Standards No. 140, Accounting for Transfer and Servicing of Financial Assets and Extinguishment of
Liabilities. There were no receivables sold under the Program at July 2, 2005 or July 3, 2004.
30