Avnet 2008 Annual Report Download - page 30

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Table of Contents
October 2007, the Company sold a building in the EMEA region and recognized a gain of $4.5 million pre- and after
tax and $0.03 per share on a diluted basis. Due to local tax allowances, the building sale was not taxable. The
Company also recognized a gain of $3.0 million pre-tax, $1.8 million after tax and $0.01 per share on a diluted basis
for the receipt of contingent purchase price proceeds related to the fiscal 2006 sale of a TS end-user business
discussed below.
During fiscal 2007, the Company recorded a gain related to the receipt of contingent purchase price proceeds
from the fiscal 2006 sale of a TS end-user business. The gain amounted to $3.0 million pre-tax, $1.8 million after tax
and $0.01 per share on a diluted basis. During fiscal 2006, the Company divested two TS end-user business lines in
the Americas and two EM specialty business lines in EMEA. In TS, the Company sold its Americas end-user server
and storage business line to a value-added reseller. As a result of these divestitures, a gain of $10.9 million pre-tax,
$7.3 million after tax and $0.05 per share on a diluted basis was recorded in the third quarter of fiscal 2006. The
Company also contributed cash and certain operating assets and liabilities of its TS Americas end-user network
solutions business into a joint venture with Calence, Inc. in exchange for an investment interest in the joint venture,
called Calence, LLC. In EM, the Company sold two small, non-core business lines in its EMEA region during the
fourth quarter of fiscal 2006 for which no tax benefit was available and, as a result, recorded a loss of $13.6 million
pre-tax, $14.3 million after tax and $0.10 per share on a diluted basis. The total impact of these divestitures in fiscal
2006 was a net loss of $2.6 million pre-tax, $7.1 million after tax and $0.05 per share on a diluted basis.
Debt Extinguishment Costs
As discussed further under Liquidity and Capital Resources — Financing Transactions, the Company incurred
debt extinguishment costs in fiscal 2007 and 2006 associated with the tender and early repurchase of a portion of its
outstanding publicly traded debt. In completing these transactions, the Company incurred debt extinguishment costs,
related primarily to premiums and other transaction costs associated with these tenders and early repurchases, which
totaled $27.4 million pre-tax, $16.5 million after tax and $0.11 per share on a diluted basis in fiscal 2007 and
$22.6 million pre-tax, $13.6 million after-tax and $0.09 per share on a diluted basis in fiscal 2006.
Income Tax Provision
Avnet’s effective tax rate on its income before income taxes was 29.6% in fiscal 2008 as compared with 33.0%
in fiscal 2007. The year-over-year decrease in effective tax rate was primarily due to the combination of:
In addition, there was a negative impact on the tax rate in the prior year due to an additional tax provision for
transfer pricing exposures in Europe, which effectively increased the prior year’s tax rate.
Avnet’s effective tax rate on its income before taxes for fiscal 2007 was 33.0% as compared with an effective
tax rate of 35.3% in fiscal 2006. The decrease in the fiscal 2007 effective tax rate over prior year is attributable to:
Net Income
As a result of the factors described in the preceding sections of this MD&A, the Company’s net income was
$499.1 million, or $3.27 per share on a diluted basis, in fiscal 2008 as compared with net income of $393.1 million,
or
27
(i)
certain statutory tax rate reductions;
(ii)
a favorable audit settlement; offset by,
(iii)
the recognition of transfer pricing exposures; and
(iv)
a change to estimates on existing tax positions.
(i)
the mix of pre
-
tax income towards the lower statutory tax rate jurisdictions;
(ii) a similar dollar amount as compared with prior years of net contingency reserves, including the
additional tax provision for transfer pricing exposures in Europe as mentioned above, applied against
significantly higher pre
-
tax income; and
(iii) the negative impact which increased prior year’s effective tax rate related to the loss on the sale of an
EM business for which no tax benefit was available.