Avnet 2007 Annual Report Download - page 35

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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 items (see Results of Operations — Restructuring, Integration and Other
Items 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 items 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.
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.
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 a Securitization Program. For a detailed description of the
Company’s external financing arrangements outstanding at June 30, 2007, please refer to Note 7 to the consolidated
financial statements appearing in Item 15 of this Report.
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