Avnet 2006 Annual Report Download - page 39

The Company utilized $423.4 million of cash and cash equivalents for working capital needs in fiscal
2006. The working capital outflows consist of growth in receivables ($254.7 million), growth in inventory
($142.6 million), net cash inflow from accounts payable ($99.7 million) and outflow for other working capital
items ($125.8 million). The driver of the change in working capital includes organic sales growth and a small
investment in inventory at TS in preparation for the seasonally stronger September quarter that TS typically
experiences. In addition, the Company paid $92.9 million during fiscal 2006 relating to restructuring,
integration and payments of amounts accrued in purchase accounting associated with the Memec acquisition,
and restructuring and other costs as a result of the sale of two TS business lines and other actions taken during
fiscal 2006. See Results of Operations Ì Restructuring, Integration and Other Charges discussed elsewhere in
this MD&A. The Company also made an accelerated contribution to the Company's pension plan during the
first quarter of fiscal 2006, totaling $58.6 million and used $27.0 million primarily for premiums, transaction
costs and other costs associated with the refinancing and repurchasing of its Notes and credit facilities (see
Financing Transactions).
The cash flows associated with investing activities included capital expenditures during fiscal 2006,
primarily related to certain information technology hardware and software purchases, a new mainframe
purchase and the ongoing development of one additional operating system to replace one of the systems that
was disposed of as part of the restructuring, integration and other charges (see Results of Operations Ì
Restructuring, Integration and Other Charges for further discussion). Also included in cash flows used in
investing activities for fiscal 2006 is $294.3 million for acquisitions and investments net of divestitures which
relate primarily to the following: (1) $297.5 million associated with the Company's acquisition of Memec,
including the retirement of substantially all of Memec's debt at the time of the acquisition (see Note 2 to the
accompanying Consolidated Financial Statements for further discussion); (2) $13.9 million cash contribution
to the Calence, LLC joint venture; and (3) $5.7 million for the purchase of shares held by a minority interest
holder in one of the Company's Israeli subsidiaries, an additional earn-out payment associated with a small
acquisition completed in fiscal 2005 and other items; net of (4) cash inflow of $22.8 million relating to the
divestiture of the TS end-user business lines during the third quarter and EM business lines during the fourth
quarter of fiscal 2006. Finally, the cash inflows from other net financing activities related primarily to cash
received for stock option exercises. As a result of the factors discussed above, the Company utilized free cash
flow of $326.5 million in fiscal 2006 along with $34.6 million related to net debt repurchases.
Avnet generated $461.8 million of net cash flows from operations during fiscal 2005. This positive cash
flow was largely driven by the Company's improved profitability in fiscal 2005, as further discussed in Results
of Operations in this MD&A, and the generation of cash from its working capital, excluding cash and cash
equivalents. Management has continued to focus on improving asset utilization and efficiency since the
economic and industry downturn that began in fiscal 2001. This focus was enhanced again in fiscal 2005 as the
Company weathered the mid-cycle inventory correction in the electronic components sector. The Company's
efforts to manage the combined balance of accounts receivable and inventories, net of accounts payable,
allowed the Company to generate positive cash flows from these working capital components of $166.4 million
in fiscal 2005. A significant catalyst for this cash flow was the Company's ability to effectively manage
inventory levels throughout its business. As discussed in Results of Operations, EM achieved record quarterly
inventory turns in the fourth quarter of fiscal 2005 as a direct result of this effort. The cash flows associated
with purchases and sales of property, plant and equipment remained relatively consistent in fiscal 2005 when
compared with prior years. Cash expenditures for acquisitions of operations relate to the first quarter fiscal
2005 acquisition of DNS Slovakia, a small computer product distributor, as well as certain legal and other
costs incurred in fiscal 2005 related to the acquisition of Memec, which did not close until after fiscal 2005.
Trends in foreign currency exchange rates shifted in fiscal 2005 to generate a net cash outflow as most foreign
currencies, particularly the Euro, weakened slightly against the U.S. Dollar in the second half of fiscal 2005.
This negative cash flow results from the translation of Avnet's cash and cash equivalents held in foreign
currencies, which were generally higher throughout the second half of fiscal 2005 resulting largely from the
combination of the Company's higher profitability and working capital management as it emerged from the
mid-cycle inventory correction. The combination of these factors yielded net free cash flow in fiscal 2005 of
$425.7 million, of which the Company utilized $100.5 million for repayment of debt (see Liquidity and
Capital Resources Ì Financing Transactions).
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