Avnet 2006 Annual Report Download - page 71

AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
February 15, 2005. The Company incurred debt extinguishment costs of $16,370,000 pre-tax, $14,215,000
after-tax and $0.12 per share on a diluted basis during fiscal 2004 related primarily to premiums and other
transaction costs associated with this tender.
At July 2, 2005, the Company had two interest rate swaps with a total notional amount of $400,000,000 in
order to hedge the change in fair value of the 8% Notes related to fluctuations in interest rates. These contracts
were classified as fair value hedges with a November 2006 maturity date. The interest rate swaps modified the
Company's interest rate exposure by effectively converting the fixed rate on the 8% Notes to a floating rate
(6.4% at July 2, 2005) based on three-month U.S. LIBOR plus a spread through their maturities. During the
first quarter of fiscal 2006, the Company terminated the interest rate swaps which hedged the 8% Notes due to
the repurchase of $254,095,000 of the $400,000,000 8% Notes, as previously discussed. The termination of the
swaps resulted in net proceeds to the Company, of which, $1,273,000 was netted in debt extinguishment costs
in the first quarter of fiscal 2006 based on the pro rata portion of the 8% Notes that were repurchased. The
remaining proceeds of $764,000, which represent the pro rata portion of the 8% Notes that were not
repurchased, have been capitalized in other long-term debt and are being amortized over the maturity of the
remaining 8% Notes.
At July 2, 2005, the Company had three additional interest rate swaps with a total notional amount of
$300,000,000 in order to hedge the change in fair value of the 9
3
/ 4 % Notes related to fluctuations in interest
rates. As discussed previously, in June 2006, the Company terminated one of the three $100,000,000 notional
amount interest rate swaps in connection with the $113,640,000 repurchase of the 9
3
/ 4 % Notes. As
$100,000,000 of the repurchase related to the terminated interest rate swap, the $3,471,000 of costs incurred to
terminate the swap were included in the debt extinguishment costs recorded in fiscal 2006. The remaining
hedges are classified as fair value hedges and mature in February 2008. These interest rate swaps modify the
Company's interest rate exposure by effectively converting the fixed rate on the 9
3
/ 4 % Notes to a floating rate
(11.7% at July 1, 2006) based on three-month U.S. LIBOR plus a spread through their maturities.
The hedged fixed rate debt and the interest rate swaps are adjusted to current market values through
interest expense in the accompanying consolidated statements of operations. The Company accounts for the
hedges using the shortcut method as defined under Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities, as amended by Statement of Financial
Accounting Standards No. 138, Accounting for Certain Derivative Instruments and Hedging Activities. Due to
the effectiveness of the hedges since inception, the market value adjustments for the hedged debt and the
interest rate swaps directly offset one another. The fair value of the interest rate swaps at July 1, 2006 was a
liability of $7,481,000 which is included in other long-term liabilities and a corresponding fair value
adjustment of the hedged debt decreased long-term debt by the same amount. The fair value of the interest
rate swaps at July 2, 2005 was an asset of $910,000, which is included in other long-term assets in the
accompanying consolidated balance sheet and a corresponding fair value adjustment of the hedged debt
increased long-term debt by the same amount.
The Company had total borrowing capacity of $950,000,000 at July 1, 2006 under the Amended Credit
Facility and the accounts receivable securitization program (see Note 3), against which $22,925,000 in letters
of credit were issued under the Amended Credit Facility as of July 1, 2006, and a combined $46,000,000 was
drawn under both facilities, resulting in $881,075,000 of net availability. Although these issued letters of credit
are not actually drawn upon at July 1, 2006, they utilize borrowing capacity under the Amended Credit
Facility and are considered in the overall borrowing capacity noted above.
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