Avnet 2006 Annual Report Download - page 43

hedges since inception, the market value adjustments for the hedged debt and the interest rate swaps directly
offset one another.
In addition to its primary financing 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 Canada, Europe and Asia. Avnet generally guarantees its subsidiaries' debt
under these facilities.
Off-Balance Sheet Arrangements
At July 2, 2005, the Company had a $350.0 million accounts receivable securitization program (the
""Securitization Program'') with two financial institutions whereby it was able to sell, on a revolving basis, an
undivided interest in a pool of its trade accounts receivable. Under the Program, the Company was able to sell
receivables in securitization transactions and retain a subordinated interest and servicing rights to those
receivables. Receivables sold under the Securitization Program were sold without legal recourse to third party
conduits through a wholly owned bankruptcy-remote special purpose entity that is consolidated for financial
reporting purposes. At July 2, 2005, the Securitization Program qualified for sale treatment under Statement
of Financial Accounting Standards No. 140, Accounting for Transfer and Servicing of Financial Assets and
Extinguishment of Liabilities. There were no receivables sold under the Program at July 2, 2005.
In August 2005, the Company amended Securitization Program to, among other things, increase the
maximum available for borrowing from $350.0 million to $450.0 million. The availability for financing under
the amended facility is dependent on the level of the Company's trade receivables from month-to-month. In
addition, the Securitization Program, as amended, no longer qualifies as off-balance sheet financing. As a
result, the receivables and related debt will remain on the Company's consolidated balance sheet as amounts
are drawn on the Securitization Program. The purpose of the Securitization 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 financing. The Securitization Program, as amended, has a one-year term and has been renewed
on substantially similar terms so that it currently terminates in August 2007. As of July 1, 2006, there was
$40.0 million of drawings on the Securitization Program.
Covenants and Conditions
The Securitization Program agreement discussed above required the Company to maintain senior
unsecured credit ratings above certain minimum ratings triggers in order to continue utilizing the Securitiza-
tion Program. These minimum ratings triggers were Ba3 by Moody's Investor Services or BB- by Standard &
Poors. The minimum ratings triggers were eliminated in the amended Securitization Program discussed in
Off-Balance Sheet Arrangements and replaced with minimum interest coverage and leverage ratios as defined
in the Credit Facility (see discussion below). The Securitization Program agreement in effect at July 2, 2005,
as well as the amended Securitization Program agreement also contains certain covenants relating to the
quality of the receivables sold. If these conditions are not met, the Company may not be able to borrow any
additional funds and the financial institutions may consider this an amortization event, as defined in the
agreements, which would permit the financial institutions to liquidate the accounts receivable sold to cover
any outstanding borrowings. Circumstances that could affect the Company's ability to meet the required
covenants and conditions of the agreements include the Company's ongoing profitability and various other
economic, market and industry factors. The Company was in compliance with all covenants of the Program at
July 1, 2006.
The Credit Facility discussed in Financing Transactions contains certain covenants with various
limitations on debt incurrence, dividends, investments and capital expenditures and also includes financial
covenants requiring the Company to maintain minimum interest coverage and leverage ratios, as defined.
Management does not believe that the covenants in the Credit Facility limit the Company's ability to pursue
its intended business strategy or future financing needs. The Company was in compliance with all covenants of
the Credit Facility as of July 1, 2006.
See Liquidity for further discussion of the Company's availability under these various facilities.
37