Avnet 2008 Annual Report Download - page 36

Table of Contents
In June 2006, the Company repurchased $113.6 million of the $475.0 million 9
3
/ 4 % Notes and, in connection
with this repurchase, the Company terminated one of the interest rate swaps with a notional amount of $100.0 million
that hedged a portion of the $475.0 million 9
3
/ 4
% Notes. The termination of this swap and repurchase of the related
hedged debt resulted in debt extinguishment costs of $10.9 million pre-tax, $6.6 million after tax or $0.04 per share
on a diluted basis. As a result of the tender and total repurchases in fiscal 2006 and the termination of interest rate
swaps noted above, the Company incurred total debt 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.
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. 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. In December 2004, the Company made an
irrevocable election to satisfy the principal portion of the Debentures in cash and settle the remaining obligation with
shares of common stock if and when the Debentures are converted.
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 Agreement (see discussion below) in order to continue utilizing
the Program. The 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 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 of the agreement include the Company’s
ongoing profitability and various other economic, market and industry factors. Management does not believe that the
covenants under the 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 Program agreement at June 28, 2008.
The Credit Agreement 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 Agreement 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 Agreement as of June 28,
2008.
See Liquidity for further discussion of the Company’s availability under these various facilities.
Liquidity
The Company had total borrowing capacity of $950.0 million at June 28, 2008 under the Credit Agreement and
the Securitization Program, against which $19.7 million in borrowings were outstanding and $24.3 million in letters
of credit were issued under the Credit Agreement, which resulted in $906.0 million of net availability at the end of
fiscal 2008. The Company also had $640.4 million of cash and cash equivalents at June 28, 2008. During fiscal 2008,
the Company utilized $300.8 million of cash on hand, net of cash proceeds from the sale of assets, to fund the seven
acquisitions completed in fiscal 2008. (See Note 2 to the accompanying consolidated financial statements in Item 15
of this Report). Subsequent to fiscal 2008 year end, the Company utilized approximately $230 million of
33