Avnet 2006 Annual Report Download - page 40

During fiscal 2004, the Company generated $64.7 million of cash and cash equivalents from its operating
activities. A return to profitability in fiscal 2004 plus the impacts of non-cash and other reconciling items
combined to yield cash inflows for fiscal 2004 of $213.7 million. Partially offsetting this amount were cash
flows of $149.0 million used for the Company's working capital needs (excluding cash and cash equivalents)
during fiscal 2004. The primary driver of this outflow relate to the growth of receivables ($271.3 million) and
inventory ($240.5 million), net of cash flow generation from accounts payable ($285.4 million) and other
working capital items ($77.4 million). 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 moved 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 grew inventory
in certain products to accommodate the growing levels in demand and in support of customer contractual
agreements to purchase certain inventory. Therefore, it is not uncommon to see cash outflows associated with
working capital when the Company is in the growth phase of an up-cycle. Despite the overall increase, the
Company continued to manage its working capital utilization and efficiency. Within EM, where the majority
of the inventory increases took place, fiscal 2004 inventory turns improved by 16% over fiscal 2003. This
improvement in turns was driven by a combination of the increased sales and the buildup of inventory only in
high demand, and thus, higher volume product lines.
Since the industry and economic downturn commenced in fiscal 2001 and continuing through fiscal 2005,
the Company had significantly reduced its capital expenditures as well as its acquisition and investment
activity. However, during fiscal 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. Pursuant to the terms of the share purchase agreement, in fiscal 2004, Avnet paid $48.9 million to former
shareholders of Eurotronics B.V. in final settlement of contingent consideration related to this acquisition.
This coupled with other, less significant contingent purchase price payments and the acquisition of a minority
interest in one of the Company's foreign subsidiaries resulted in total cash outflow for acquisitions and
investments of $50.5 million during fiscal 2004. These outflows for investing activities, offset in part by the
favorable impact of foreign currency exchange rates on cash and cash equivalents and other financing
activities, yielded a net free cash flow of $13.5 million. This net free cash flow, 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 fiscal 2004 (see Liquidity and Capital Resources Ì Financing Transactions), resulted
in a net decrease in cash during fiscal 2004 of $82.8 million.
Capital Structure
The Company uses a variety of financing arrangements, both short-term and long-term, to fund its
operations. The Company also uses diversified sources of funding so that it does not become overly dependent
on one source and to achieve lower cost of funding through these different alternatives. These financing
arrangements include public bonds, short-term and long-term bank loans and an accounts receivable
securitization program. For a detailed description of the Company's external financing arrangements
outstanding at July 1, 2006, please refer to Note 7 to the consolidated financial statements appearing in
Item 15 of this Report.
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