Avnet 2006 Annual Report Download - page 27

Download and view the complete annual report

Please find page 27 of the 2006 Avnet annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 98

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98

MD&A for further discussion of the actions taken by the Company) and also continued its focus on operating
efficiencies and cost savings through various value-based management initiatives.
The first quarter of fiscal 2006 represented the first period in which the Company was required to adopt
the provisions of SFAS 123R. SFAS 123R requires all share-based payments to employees, including grants
of employee stock options, to be measured at fair value and expensed in the statement of operations. The
impact of adopting SFAS 123R, coupled with additional compensation expense associated with increased
grants under some of the Company's non-option, stock-based compensation programs, resulted in $16.6 mil-
lion of incremental expense during fiscal 2006 when compared with fiscal 2005.
The Company identified a total of $26.4 million of amortizable intangible assets associated with the
Memec acquisition. The Company allocated $22.6 million of the Memec purchase price to intangible assets
associated with acquired customer relationships and $3.8 million to intangible assets associated with the
Memec tradename. The customer relationship asset has been assigned a life of ten years and the tradename
asset has been assigned a life of two years. The asset values will be amortized on a straight-line basis over
these identified lives. During fiscal 2006, the Company recorded amortization expense of $4.2 million
associated with these intangible assets.
Avnet's consolidated SG&A expenses were $1.14 billion, or 10.3% of sales, in fiscal 2005 as compared
with $1.11 billion, or 10.8% of sales, in fiscal 2004. SG&A expenses as a percentage of gross profit of 78.0% in
fiscal 2005 represented a 313 basis point improvement over the same ratio in fiscal 2004. The improvement in
these metrics between fiscal 2005 and fiscal 2004 was a result of the Company's restructuring efforts. Selling,
general and administrative expenses were negatively impacted in fiscal 2005 by an increased level of corporate
operating expenses, driven primarily by increased professional fees and related costs associated with the
Company's Sarbanes-Oxley Section 404 compliance efforts. Partially offsetting the positive impacts of
restructuring activities that occurred in prior years, the fiscal 2005 SG&A expenses were negatively impacted
by the translation impact of changes in foreign currency exchange rates between fiscal 2005 and fiscal 2004,
which management estimates yielded an increase in fiscal 2005 costs of approximately $31 million (0.3% of
fiscal 2005 sales and 2.1% of fiscal 2005 gross profits).
Restructuring, Integration and Other Charges
The Company recorded a number of restructuring, integration and other charges during fiscal 2006 and
2004. There were no restructuring charges recorded in fiscal 2005. The fiscal 2006 restructuring, integration
and other charges relate primarily to actions taken to integrate Memec into the existing Avnet business as well
as actions taken in connection with recent divestitures, and other actions. The fiscal 2004 charges relate
primarily to the reorganization of operations in each of the three major regions of the world in which the
Company operates, generally taken in response to business conditions at the time of the charge and as part of
the Company's efforts to return to the profitability levels enjoyed by the business prior to the industry and
economic downturn that commenced in fiscal 2001. See Note 17 to the consolidated financial statements in
Item 15 of this Report for a more detailed summary of activity within the restructuring, integration and other
charge accounts during the past three years.
Fiscal 2006
During the fiscal year 2006, the Company has incurred certain restructuring, integration and other
charges as a result of the acquisition of Memec on July 5, 2005, which is discussed further under Memec-
related restructuring, integration and other charges. In addition, the Company has incurred restructuring and
other charges primarily relating to actions taken following the divestitures of two TS end-user business lines in
the Americas region, certain cost reduction actions taken by TS in the EMEA region, and other items, which
are discussed further under Restructuring and other charges related to business line divestitures and other
actions. The restructuring, integration and other charges incurred for all of these activities totaled $69.9 mil-
lion pre-tax (including $9.0 million recorded in cost of sales), $49.9 million after-tax and $0.34 per share on a
diluted basis for fiscal 2006.
21