Avnet 2005 Annual Report Download - page 64

AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
29.5516 shares of common stock per $1,000 principal amount of Debentures. The Debentures are only
convertible under certain circumstances, including if: (i) the closing price of the Company's common stock
reaches $45.68 per share (subject to adjustment in certain circumstances) for a specified period of time;
(ii) the average trading price of the Debentures falls below a certain percentage of the conversion value per
Debenture for a specified period of time; (iii) the Company calls the Debentures for redemption; or
(iv) certain corporate transactions, as defined, occur. Upon conversion, the Company will deliver cash in lieu
of common stock as the Company made an irrevocable election in December 2004 to satisfy the principal
portion of the Debentures, if converted, in cash. The Company may redeem some or all of the Debentures for
cash any time on or after March 20, 2009 at the Debentures' full principal amount plus accrued and unpaid
interest, if any. Holders of the Debentures may require the Company to purchase, in cash, all or a portion of
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 $292,500,000. The
Company used these proceeds to fund the tender and purchase of $273,367,000 of its 7
7
/ 8 % Notes due
February 15, 2005. The Company incurred debt extinguishment costs of $16,370,000 pre-tax, $14,215,000
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.
The Company has an unsecured, three-year $350,000,000 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.
The Company has two interest rate swaps with a total notional amount of $400,000,000 in order to hedge
the change in fair value of the 8% Notes related to fluctuations in interest rates. These contracts are classified
as fair value hedges and 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. During August 2005, the Company
terminated the interest rate swaps which hedged the 8% Notes due to the anticipated tender offer to
repurchase $250,000,000 of the $400,000,000 8% Notes.
The Company has three additional interest rate swaps with a total notional amount of $300,000,000 in
order to hedge the change in fair 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 also 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 accompanying consolidated statements of operations. 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. The fair value of the interest rate swaps at July 2, 2005 and
July 3, 2004 was $910,000 and $13,563,000, respectively, and is included in other long-term assets in the
accompanying consolidated balance sheets. Additionally, included in long-term debt is a comparable fair value
adjustment increasing long-term debt by $910,000 and $13,563,000 at July 2, 2005 and July 3, 2004,
respectively.
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