Avnet 2004 Annual Report Download - page 34

month of Ñscal 2004, management believes its inventory levels are adequate but not excessive in addressing
forecast demand in the upcoming months.
Since the industry and economic downturn commenced in Ñscal 2001, the Company has signiÑcantly
reduced its capital expenditures as well as its acquisition and investment activity. However, during Ñscal 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. The share purchase agreement for this
acquisition called for an additional payment of cash or common stock of the Company if the Company's share
price did not reach $45.25 per share by January 2004. As a result, during the fourth quarter of Ñscal 2004, the
Company paid, in cash, the sum of $48.9 million as settlement of the Company's Ñnal obligation under this
acquisition. This coupled with other, less signiÑcant contingent purchase price payments and the acquisition of
a minority interest in one of the Company's foreign subsidiaries resulted in total cash outÖow for acquisitions
and investments of $50.5 million during Ñscal 2004. These outÖows for investing activities, oÅset in part by the
favorable impact of foreign currency on cash and cash equivalents and other Ñnancing activities, yielded a net
free cash Öow of $13.5 million. This net free cash Öow, 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 Ñscal 2004 (see Financing Transactions), resulted in a net decrease in cash during Ñscal 2004 of
$82.8 million.
In Ñscal 2003, cash Öow of $169.5 million was generated from net income (loss) excluding 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 Öow from operations of $651.9 million. The positive cash Öow
generated from working capital reductions resulted from the Company's continued eÅorts to improve its asset
utilization and eÇciency, primarily through reductions of receivables (cash inÖow of $140.7 million) and
inventories (cash inÖow of $387.1 million), in what continued to be a stable but weak electronic components
and computer products distribution industry during Ñscal 2003. In addition to cash Öow from operating
activities in Ñscal 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 Ñscal 2003, to yield net free cash Öow in Ñscal 2003 of
$637.6 million. A total of $401.4 million of this free cash Öow 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 Ñscal 2003, with the remaining $236.2 million
generating additional cash and cash equivalents during Ñscal 2003.
In Ñscal 2002, cash Öow from operating activities totaled $976.3 million. During this period, $151.5 mil-
lion was generated from net income (loss) excluding non-cash and other reconciling items and the cumulative
eÅect of change in accounting principle. An additional $824.8 million was generated by reductions in working
capital (excluding cash and cash equivalents). The cash Öow impact of working capital was more signiÑcant in
Ñscal 2002 than in the years thereafter as this year represented the Ñrst full Ñscal year of the economic
downturn and, thus, a period when more signiÑcant balance sheet management initiatives were put in place. In
addition, the Company used $73.2 million for other business operations including dividend payments,
purchases of property plant and equipment, oÅset in part by cash proceeds on sale of property plant and
equipment and net cash generated from other items. The Company also used $34.1 million for acquisitions of
operations and investments during 2002. The resulting net free cash Öow of $869.0 million along with
$394.3 million of cash proceeds from long-term debt Ñnancing were used to reduce drawings under the
accounts receivable securitization program by $150.0 million and to, net, repay debt balances of $1.051 billion.
Finally, cash and cash equivalents increased by $62.0 million for the year.
Capital Structure
The Company uses a variety of Ñnancing arrangements, both short-term and long-term, to fund its
operations. The Company uses diversiÑed sources of funding so that it does not become overly dependent on
one source and to achieve lower cost of funding through these diÅerent alternatives. These Ñnancing
arrangements include public bonds, short-term and long-term bank loans, commercial paper and an accounts
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