Avnet 2004 Annual Report Download - page 33

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Liquidity and Capital Resources
Cash Flows
The following table summarizes the Company's cash Öow activities for Ñscal 2004, 2003 and 2002,
including the Company's computation of free cash Öow. Management believes that the non-GAAP metric of
free cash Öow is a useful measure to help management and investors better assess and understand the
Company's operating performance and sources and uses of cash. Management also believes analysis of free
cash Öow assists in identifying underlying trends in the business.
Years Ended
July 3, June 27, June 28,
2004 2003 2002
(Millions)
Net income excluding non-cash and other reconciling
items and cumulative eÅect of change in accounting
principle ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 213,680 $ 169,457 $ 151,511
Cash Öow generated from (used for) working capital
(excluding cash and cash equivalents)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (149,031) 482,421 824,794
Net cash Öow from operationsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 64,649 651,878 976,305
Cash Öow generated from (used for):
Purchases of property, plant and equipment ÏÏÏÏÏÏÏÏÏÏ (28,623) (34,169) (87,173)
Cash proceeds from sales of property, plant and
equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 5,229 16,379 3,423
Acquisition of operations and investments ÏÏÏÏÏÏÏÏÏÏÏÏ (50,528) (9,210) (34,091)
EÅect of exchange rates on cash and cash equivalentsÏÏ 8,834 13,194 12,859
Cash dividends ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì Ì (26,546)
Other, net Ñnancing activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 13,914 (474) 24,225
Net free cash ÖowÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 13,475 637,598 869,002
Reduced drawings under accounts receivable
securitization program ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì (200,000) (150,000)
Repayment of debt, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (96,275) (201,365) (657,047)
Net increase (decrease) in cash and cash equivalents $ (82,800) $ 236,233 $ 61,955
During Ñscal 2004, the Company generated $64.7 million of cash and cash equivalents from its operating
activities. This is made up of the cash Öow generated from net income excluding non-cash and other
reconciling items, which includes the add-back of depreciation and amortization, deferred taxes, non-cash
restructuring and other charges (see Results of Operations Ì Restructuring and Other Charges for further
discussion) and other non-cash items (primarily the provision for doubtful accounts Ì see Note 15 to the
consolidated Ñnancial statements appearing in Item 15 of this Report). The sum of these items yielded cash
inÖow for the year of $213.7 million. Partially oÅsetting this amount are cash Öows of $149.0 million used for
the Company's working capital needs (excluding cash and cash equivalents) during Ñscal 2004. The primary
driver of this outÖow relate to the growth of receivables ($271.3 million) and inventory ($240.5 million), net
of cash Öow generation from accounts payable ($285.4 million) and other working capital items ($77.4 mil-
lion). 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 moves 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 elected to build inventory in certain products to
accommodate the growing levels in demand and in support of customer contractual agreements to purchase
certain inventory. Despite this growth in inventory during Ñscal 2004, the Company's inventory turns for the
year remained at their highest point since before the last up-cycle ended in Ñscal 2001 and actually improved
by 18% over inventory turns in Ñscal 2003. Within EM on a standalone basis, where the majority of the
inventory increases took place, Ñscal 2004 inventory turns improved by 16% over Ñscal 2003. This
improvement in turns is driven by a combination of the increased sales and the selective buildup of inventory
primarily in higher volume product lines. Even with some moderate seasonal leveling oÅ of sales in the Ñnal
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