Avnet 2006 Annual Report Download - page 16

subject to additional restrictions and covenants. Any material increase in the Company's financing costs could
have a material adverse effect on its profitability.
Under some of its various credit facilities, the Company is required to maintain certain specified financial
ratios and meet certain tests. If the Company fails to meet these financial ratios and tests, it may be unable to
continue to utilize these facilities. If the Company could not continue to utilize these facilities, it may not have
sufficient cash available to make interest payments on and refinance indebtedness and for general corporate
needs.
The agreements governing some of the Company's financings contain various covenants and restrictions
that limit the discretion of management in operating its business and could prevent us from engaging in
some activities that may be beneficial to the Company's business.
The agreements governing the Company's financing, including its five-year, $500 million credit facility
and the indentures governing the Company's outstanding notes, contain various covenants and restrictions
that, in certain circumstances, limit the Company's ability and the ability of certain subsidiaries to:
‚ grant liens on assets;
‚ make restricted payments (including paying dividends on capital stock or redeeming or repurchasing
capital stock);
‚ make investments;
‚ merge, consolidate or transfer all or substantially all of the Company's assets;
‚ incur additional debt; or
‚ engage in certain transactions with affiliates.
As a result of these covenants and restrictions, the Company may be limited in how it conducts its
business and may be unable to raise additional debt, compete effectively or make investments.
Declines in the value of the Company's inventory or unexpected order cancellations by the Company's
customers could materially, adversely affect its business, results of operations, financial condition or
liquidity.
The electronic components and computer products industry is subject to rapid technological change, new
and enhanced products and evolving industry standards, which can contribute to a decline in value or
obsolescence of inventory. During an industry and/or economic downturn, it is possible that prices will decline
due to an oversupply of product and, therefore, there may be greater risk of declines in inventory value.
Although it is the policy of many of the Company's suppliers to offer distributors like us certain protections
from the loss in value of inventory (such as price protection, limited rights of return and rebates), the
Company cannot be assured that such return policies and rebates will fully compensate us for the loss in value,
or that the vendors will choose to, or be able to, honor such agreements, some of which are not documented
and therefore subject to the discretion of the vendor. In addition, the Company's sales are typically made
pursuant to individual purchase orders, and the Company generally does not have long-term supply
arrangements with its customers. Generally, the Company's customers may cancel orders 30 days prior to
shipment with minimal penalties. The Company cannot be assured that unforeseen new product develop-
ments, declines in the value of the Company's inventory or unforeseen order cancellations by its customers will
not materially, adversely affect the Company's business, results of operations, financial condition or liquidity,
or that the Company will successfully manage its existing and future inventories.
10