Avnet 2007 Annual Report Download - page 34

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(1) Non-cash and other reconciling items are the combination of depreciation and amortization, deferred income
taxes, non-cash restructuring and other charges, stock-based compensation, and other, net, (primarily the
provision for doubtful accounts and periodic pension costs) in cash flows from operations.
(2) Cash flow from working capital is the combination of the changes in the Company’s working capital and other
balance sheet accounts in cash flows from operations (receivables, inventories, accounts payable and accrued
expenses and other, net).
During fiscal 2007, the Company generated $724.6 million of cash and cash equivalents from its operating
activities as compared with a utilization of $19.1 million in the fiscal 2006. These results are comprised of: (1) the
cash flow generated from net income excluding non-cash and other reconciling items, which consist of the add-back
of depreciation and amortization, deferred income taxes, stock-based compensation, non-cash restructuring and
other charges, and other non-cash items (primarily the provision for doubtful accounts and periodic pension costs)
and (2) the cash flows generated from (used for) working capital, excluding cash and cash equivalents. The working
capital inflow in fiscal 2007 consisted of an increase in receivables ($129.4 million), decrease in inventories
($53.7 million), increase in accounts payable ($262.2 million) and cash outflow for other items ($60.3 million). The
growth in receivables as well as payables was primarily attributable to TS and was driven, in part, by the acquisition
of the Access business for which the largest supplier is Sun Microsystems whose strongest quarter is typically its
June fiscal year end. The decrease in inventory was a net result of EM’s decrease of $74 million partially offset by a
small increase in inventory at TS. In addition, during fiscal 2007, the Company paid $29.7 million associated with
the restructuring, integration and other charges and exit-related costs accrued through purchase accounting. See
Results of Operations — Restructuring, Integration and Other Items discussed elsewhere in this MD&A.
For fiscal 2007, the Company’s cash flows associated with investing activities included capital expenditures
related to system development costs, computer hardware and software expenditures as well as certain leasehold
improvement costs. Also included in cash flows from investing activities is cash used for the acquisition of Access,
Azure and a small distributor business in Italy (see Note 2 in the accompanying consolidated financial statements
appearing in Item 15 of this Report), net of contingent purchase price proceeds received (see Results of
Operations — Gain (Loss) on Sale of Business Lines discussed elsewhere in this MD&A). Other financing
activities, net, in fiscal 2007 are primarily a result of cash from the exercise of stock options and the excess
tax benefits associated with stock option exercises.
As a result of the factors discussed above, the Company generated free cash flow of $316.3 million and used a
net $35.6 million to repay debt during fiscal 2007. During fiscal 2007, the Company redeemed the 93⁄4% Notes
outstanding balance of $361.4 million using proceeds from the issuance of $300.0 million of 6.625% Notes in
September 2006 and repaid $143.7 million of the 8.00% Notes that matured in November 2006. In March 2007, the
Company issued $300.0 million of 5.875% Notes due 2014 and used proceeds to repay certain amounts outstanding
under its Credit Facility and the Securitization Program that were used to fund the Access acquisition (see
Financing Transactions for further discussion).
In fiscal 2006, the Company utilized $423.4 million of cash and cash equivalents for working capital needs.
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 — Restructuring, Integration and Other Items 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).
34