Avnet 2007 Annual Report Download - page 19

are used to translate the results of operations of Avnet’s subsidiaries denominated in foreign currencies, the resulting
impact is an increase, in US Dollars, of reported results. When the stronger US Dollar exchange rates are used to
translate the results, the resulting impact is a decrease, in US Dollars, of reported results. In the discussion that
follows, this is referred to as the “translation impact of changes in foreign currency exchange rates.” When this
“translation impact of changes in foreign currency exchange rates” is excluded from the reported results on a pro
forma basis, it is referred to as “constant dollars.” Results as reported in the financial statements which include this
translation impact are referred to as “delivered dollars” or “reported 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 translation impact of changes in foreign currency exchange rates, as
discussed above, or adjusted for the impact of acquisitions (by adjusting Avnet’s prior periods to include the sales of
businesses acquired prior to the date of acquisition) and divestitures (by adjusting Avnet’s prior periods to exclude
the sales of businesses divested). 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.
However, 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
Several items impacted the financial results for Avnet as a whole when comparing fiscal 2007 results with
fiscal 2006. The acquisitions of Access Distribution (“Access”) and Azure Technology (“Azure”) (both discussed
further below), which occurred in the third and fourth quarter of fiscal 2007, respectively, positively impacts the
comparison of results to prior period results of Avnet and TS as prior periods do not include the acquired business’
results before the date of acquisition. Also, in conjunction with the acquisition of Access and reflecting recent
industry trends, the Company reviewed its method of recording revenue related to the sales of supplier service
contracts and determined that such sales will now be classified on a net revenue basis rather than on a gross basis
beginning the third quarter of fiscal 2007 (referred to as “the change to net revenue reporting” in this MD&A).
Although this change reduces sales and cost of sales for the Technology Solutions operating group and on a
consolidated basis, it has no impact on operating income, net income, cash flow or the balance sheet. The Company
divested of several small non-core businesses during fiscal 2006 affecting both EM and TS which also negatively
impacts fiscal 2007 sales comparisons with fiscal 2006 as the prior periods include the sales of the divested
businesses. These items, when aggregated, have a net positive impact on fiscal 2007 sales comparisons to prior
periods and are presented in tables under Sales.
As mentioned above, on December 31, 2006, Avnet completed the acquisition of Access Distribution, a
leading value-added distributor of complex computing solutions which recorded sales of $1.90 billion in calendar
year 2006. The purchase price of approximately $437.6 million, subject to adjustment based upon the audited
closing net book value, was funded primarily with debt plus cash on hand. The integration of the Access business
into the TS Americas and EMEA operations was complete as of the end of fiscal 2007 and, as a result, the Company
estimates it achieved more than $15 million of annualized synergies; the benefit of which will largely impact fiscal
2008. In addition, during fourth quarter of fiscal 2007, the Company acquired Azure, an IT solutions provider in
Asia that specializes in systems infrastructure and application solutions services with annualized sales of
approximately $90 million.
Avnet’s consolidated sales for fiscal 2007 were a record $15.68 billion, up $1.43 billion or 10.0%, over fiscal
2006 of $14.25 billion, with approximately $340 million of the increase resulting from the translation impact of
foreign currency exchange rates. The TS operating group was the driver of the year-over-year growth primarily as a
result of the Access and Azure acquisitions, which contributed over $950 million in sales since they were acquired.
TS sales were up 20.2% year over year and EM sales were up 4.5%. As presented in the tables under Sales,
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