Avnet 2011 Annual Report Download - page 35

Table of Contents
Covenants and Conditions
The Securitization Program discussed previously requires the Company to maintain certain minimum interest coverage and
leverage ratios as defined in the securitization agreement in order to continue utilizing the Securitization Program. The Securitization
Program 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 receivables sold to cover any outstanding
borrowings. Circumstances that could affect the Company’
s ability to meet the required covenants and conditions of the Securitization
Program 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 its
future financing needs. The Company was in compliance with all covenants of the Securitization Program at July 2, 2011.
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 in the Credit Agreement. Management does not believe that the covenants
in the Credit Agreement limit the Company’
s ability to pursue its intended business strategy or its future financing needs. The
Company was in compliance with all covenants of the Credit Agreement as of July 2, 2011.
See Liquidity below for further discussion of the Company’s availability under these various facilities.
Liquidity
The Company had total borrowing capacity of $1.1 billion at July 2, 2011 under the Credit Agreement and the Securitization
Program. There were $122.1 million in borrowings outstanding and $16.6 million in letters of credit issued under the Credit
Agreement and $160.0 million outstanding under the Securitization Program resulting in $801.3 million of net availability at the end
of fiscal 2011. During fiscal 2011, the Company had an average daily balance outstanding under the Credit Agreement of
$142.4 million and $405.4 million under the Securitization Program. During fiscal 2010, the Company had an average daily balance
outstanding under the Credit Agreement of $92.7 million. The Company had no borrowings outstanding under the Securitization
Program during fiscal 2010.
The Company had cash and cash equivalents of $675.3 million as of July 2, 2011, of which $613.2 million was held outside the
U.S. As of July 3, 2010, the Company had cash and cash equivalents of $1.09 billion, of which $507.9 million was held outside of the
U.S. Liquidity is subject to many factors, such as normal business operations as well as general economic, financial, competitive,
legislative, and regulatory factors that are beyond the Company’
s control. Cash balances generated and held in foreign locations are
used for on-
going working capital, capital expenditure needs and to support acquisitions. These balances are currently expected to be
permanently reinvested outside the U.S. If these funds were needed for general corporate use in the U.S., the Company would incur
significant income taxes to repatriate cash held in foreign locations to the extent they are in excess of outstanding intercompany loans
due to Avnet, Inc. from the foreign subsidiaries. In addition, local government regulations may restrict the Company’
s ability to move
funds among various locations under certain circumstances. Management does not believe such restrictions would limit the
Company’s ability to pursue its intended business strategy.
During fiscal 2011, the Company utilized $691.0 million of cash, net of cash acquired, for acquisitions, which included
repayments of certain debt assumed in the acquisitions. The Company assumed a total of $420.3 million of debt as a result of the
acquisitions and repaid $211.9 million of assumed debt (including associated fees) at the acquisition dates. The Company has been
making and expects to continue to make strategic investments through acquisition activity to the extent the investments strengthen
Avnet’s competitive position and meet management’s return on capital thresholds.
In addition to continuing to make investments in acquisitions, the Company may repurchase up to an aggregate of $500 million
of shares of the Company’
s common stock through a share repurchase program approved by the Board of Directors in August 2011.
The Company plans to repurchase stock from time to time at the discretion of management, subject to strategic considerations, market
conditions and other factors. The Company may terminate or limit the stock repurchase program at any time without prior notice.
During periods of weakening demand in the electronic component and enterprise computer solutions industry, the Company
typically generates cash from operating activities. Conversely, the Company is more likely to use operating cash flows for working
capital requirements during periods of higher growth. However, during fiscal 2011, revenue was up 38.5% year over year, yet the
Company generated $278.1 million in cash from operations as a result of significant growth in operating income which was in excess
of cash required for working capital purposes. Management believes that Avnet’
s borrowing capacity, its current cash availability and
the Company’s expected ability to generate operating cash flows are sufficient to meet its projected financing needs.
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