Avnet 2006 Annual Report Download - page 23

excluded from results, it is referred to as ""constant dollars.'' Results including this translation impact are
referred to as ""delivered dollars.''
In addition to disclosing financial results that are determined in accordance with US generally accepted
accounting principles (""GAAP''), the Company also discloses certain non-GAAP financial information such
as income or expense items as adjusted for the impact of foreign currency exchange rate fluctuations, as
discussed above. Management believes that providing this additional information is useful to the reader to
better assess and understand operating performance, especially when comparing results with previous periods
or forecasting performance for future periods, primarily because management typically monitors the business
both including and excluding these adjustments to GAAP results. Management also uses these non-GAAP
measures to establish operational goals and, in some cases, for measuring performance for compensation
purposes.
As further discussed in Results of Operations Ì Executive Summary below, during the first quarter of
fiscal 2006, Avnet completed the acquisition of Memec Group Holdings Limited (""Memec''), a global
distributor that marketed and sold a portfolio of semiconductor devices from industry-leading suppliers, in
addition to providing customers with engineering expertise and design services. Memec recorded sales of
$2.28 billion in the twelve months prior to the July 5, 2005 close of the acquisition, which makes this Avnet's
largest acquisition to date based on sales. The consideration paid for the Memec acquisition consisted of stock
and cash valued at approximately $506.9 million, including transaction costs, plus the assumption of
$240.0 million of Memec's net debt (debt less cash acquired). All but $27.3 million of this acquired net debt
was repaid upon the closing of the acquisition. Under the terms of the purchase, Memec investors received
24.011 million shares of Avnet common stock plus $64.0 million in cash. The shares of Avnet common stock
were valued at $17.42 per share, which represents the five-day average stock price beginning two days before
the acquisition announcement on April 26, 2005.
Within this MD&A, management occasionally discusses fiscal 2005 sales of Avnet combined with the
historical results of Memec for the corresponding period. Although the Memec acquisition is accounted for as
a purchase business combination and, therefore, the results of Memec are only included in Avnet's results
subsequent to the July 5, 2005 close of the acquisition, management believes that comparative analysis of
fiscal 2006 financial results to fiscal 2005, as if Memec were a part of Avnet's operations during fiscal 2005,
helps investors relate current year results to historical periods prior to the close of the acquisition.
Management uses similar pro forma data to analyze performance for internal operational goal setting and
performance management. Furthermore, the combined results of Avnet and Memec in prior periods provide
one of the bases by which management evaluates its achievement of synergy targets resulting from the merger
as discussed further herein. In the discussion that follows, mention of Avnet and Memec or Electronics
Marketing and Memec combined data is referred to as pro forma combined results or pro forma basis.
Analysis of results and outlook on a non-GAAP basis should be used as a complement to, and in
conjunction with, data presented in accordance with GAAP.
Results of Operations
Executive Summary
Avnet's consolidated results for fiscal 2006 were significantly and positively impacted by the acquisition
of Memec and the reasonably strong business environment in the markets in which the Company does
business. As a result, the Company's consolidated sales grew by 28.8% from fiscal 2005 to fiscal 2006 to a
record $14.25 billion. Sales growth over that period on a pro forma basis to include Memec's fiscal 2005 sales
was 6.8% in reported dollars, or 8.3% excluding the translation impact of changes in foreign currency exchange
rates. Electronic Marketing's (""EM'') sales for fiscal 2006 were up 48% over fiscal 2005 to a record
$9.26 billion, and were up 8.4% on a pro forma basis including Memec in the prior period. Excluding the
translation impact of changes in foreign currency exchange rates, sales on a pro forma basis were up 10.2%. All
three regions within EM saw strong year-over-year growth. Technology Solutions (""TS'') sales for fiscal 2006
grew by 3.8% as compared with fiscal 2005 to a record $4.99 billion, and were up 4.9% excluding the
translation impact of changes in foreign currency exchange rates.
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