Avnet 2007 Annual Report Download - page 37

extinguishment costs of $22.6 million pre-tax, $13.6 million after tax or $0.09 per share on a diluted basis, relating
primarily to premiums and other transaction costs.
In August 2005, the Company issued $250.0 million of 6.00% Notes due September 1, 2015. The proceeds
from the offering, net of discount and underwriting fees, were $246.5 million. The Company used these proceeds,
plus cash and cash equivalents on hand, to fund the tender and repurchase during the first quarter of fiscal 2006 of
$254.1 million of the 8.00% Notes due November 15, 2006. As a result of the tender and repurchases, the Company
incurred debt extinguishment costs of $11.7 million pre-tax, $7.1 million after tax, or $0.05 per share on a diluted
basis, relating primarily to premiums and other transaction costs.
The Company’s $300.0 million of 2% Convertible Senior Debentures due March 15, 2034 (the “Debentures”)
are convertible into Avnet common stock at a rate of 29.5516 shares of common stock per $1,000 principal amount
of Debentures. The Debentures are only convertible under certain circumstances, including if: (i) the closing price
of the Company’s common stock reaches $45.68 per share (subject to adjustment in certain circumstances) for a
specified period of time; (ii) the average trading price of the Debentures falls below a certain percentage of the
conversion value per Debenture for a specified period of time; (iii) the Company calls the Debentures for
redemption; or (iv) certain corporate transactions, as defined, occur. Upon conversion, the Company will deliver
cash in lieu of common stock as the Company made an irrevocable election in December 2004 to satisfy the
principal portion of the Debentures, if converted, in cash. The Company may redeem some or all of the Debentures
for cash any time on or after March 20, 2009 at the Debentures’ full principal amount plus accrued and unpaid
interest, if any. Holders of the Debentures may require the Company to purchase, in cash, all or a portion of the
Debentures on March 15, 2009, 2014, 2019, 2024 and 2029, or upon a fundamental change, as defined, at the
Debentures’ full principal amount plus accrued and unpaid interest, if any.
The hedged fixed rate debt and the interest rate swaps outstanding at the end of fiscal 2006 were adjusted to
current market values through interest expense in the accompanying consolidated statements of operations. The
Company accounts for 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 $7.5 million 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. As discussed above, the Company terminated all
remaining interest rate swaps during the first quarter of fiscal 2007 in connection with the redemption of the
93⁄4% Notes.
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 Europe, Asia and Canada. Avnet generally guarantees its subsidiaries’ debt under these
facilities.
Covenants and Conditions
The Securitization Program discussed previously requires the Company to maintain certain minimum interest
coverage and leverage ratios as defined in the Credit Facility (see discussion below) in order to continue utilizing the
Securitization Program. The 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 Secu-
ritization Program agreement, 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 under the Securitization Program agreement include the Company’s ongoing
profitability and various other economic, market and industry factors. Management does not believe that the
covenants under the Securitization Program 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 Securitization Program
agreement at June 30, 2007.
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