Avnet 2004 Annual Report Download - page 36

In February 2003, the Company used the proceeds of $465.3 million, net of underwriting fees, from the
issuance in that month of the Company's $475.0 million of 9
3
/ 4 % Notes due February 14, 2008 (the
""9
3
/ 4 % Notes) to redeem $159.1 million of its 6.45% Notes due August 15, 2003 (the ""6.45% Notes'') and
$220.1 million of its 8.20% Notes due October 17, 2003 (the ""8.20% Notes''). The excess proceeds after these
early redemptions were held in an escrow account and used to repay the remaining principal on the 6.45% and
8.20% Notes at their respective maturity dates plus interest due through their maturities. The Company
incurred debt extinguishment costs of $13.5 million pre-tax, $8.2 million after tax and $0.07 per share on a
diluted basis during Ñscal 2003 related primarily to premiums and other transaction costs associated with the
tender and early redemption of the 6.45% and 8.20% Notes.
The Company has two interest rate swaps with a total notional amount of $400.0 million in order to hedge
the change in fair value of the 8.00% Notes due November 15, 2006 (the ""8% Notes'') related to Öuctuations
in interest rates. These contracts are classiÑed as fair value hedges and mature in November 2006. The interest
rate swaps modify the Company's interest rate exposure by eÅectively converting the Ñxed rate on the
8% Notes to a Öoating rate (4.5% at July 3, 2004) based on three-month U.S. LIBOR plus a spread through
their maturities. In July 2003, the Company entered into three additional interest rate swaps with a total
notional amount of $300.0 million in order to hedge the change in fair value of the 9
3
/ 4 % Notes related to
Öuctuations in interest rates. These hedges are also classiÑed as fair value hedges and mature in February
2008. These interest rate swaps modify the Company's interest exposure by eÅectively converting the Ñxed
rate on the 9
3
/ 4 % Notes to a Öoating rate (7.8% at July 3, 2004) based on three-month U.S. LIBOR plus a
spread through their maturities. The hedged Ñxed rate debt and the interest rate swaps are adjusted to current
market values through interest expense in the consolidated statements of operations. The fair value of the
interest rate swaps at July 3, 2004 and June 27, 2003 was $13.6 million and $36.2 million, respectively, and is
included in other long-term assets in the consolidated balance sheet. Additionally, included in long-term debt
is a comparable fair value adjustment increasing the total liability by these same amounts.
In addition to its primary Ñnancing 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.
OÅ-Balance Sheet Arrangements
The Company has a $350.0 million accounts receivable securitization program (the ""Program'') with two
Ñnancial institutions whereby it may sell, on a revolving basis, an undivided interest in a pool of its trade
accounts receivable. Under the Program, the Company may sell receivables in securitization transactions and
retain a subordinated interest and servicing rights to those receivables. Receivables sold under the Program are
sold without legal recourse to third party conduits through a wholly owned bankruptcy-remote special purpose
entity that is consolidated for Ñnancial reporting purposes. The Program qualiÑes for sale treatment under
Statement of Financial Accounting Standards No. 140, Accounting for Transfers and Servicing of Financial
Assets and Extinguishment of Liabilities. The availability for Ñnancing under the Program is dependent on the
level of the Company's trade receivables from month to month. There were no receivables sold under the
Program at July 3, 2004 or at June 27, 2003. The purpose of the Program is to provide the Company with an
additional source of liquidity at interest rates more favorable than it could receive through other forms of
Ñnancing. The term of the current Program agreement extends to August 2005.
Covenants and Conditions
The Program agreement discussed above requires the Company to maintain minimum senior unsecured
credit ratings in order to continue utilizing the Program in its current form. These minimum ratings triggers are
Ba3 by Moody's Investor Services (""Moody's'') or BB¿ by Standard & Poors (""S&P''). The Program also
contains certain covenants relating to the quality of the receivables sold under the Program. If these conditions
are not met, the Company may not be able to borrow any additional funds under the Program and the financial
institutions may consider this an amortization event, as defined in the Program agreement, which would permit
the financial institutions to liquidate the accounts receivable sold under the Program to cover any outstanding
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