Avnet 2007 Annual Report Download - page 22

exchange rates, as discussed above, but were negatively impacted as prior year sales for the EM EMEA region
included revenues of approximately $123 million of two small specialty businesses that were divested in the fourth
quarter of fiscal 2006. EM Asia sales were $2.65 billion, up 9.6% over fiscal 2006 sales of $2.42 billion as Asia
continues to experience the highest growth rate among the three regions.
TS reported sales of $6.00 billion for fiscal 2007, up $1.01 billion, or 20.2%, when compared with fiscal 2006
sales of $4.99 billion. Approximately $118 million of the growth is due to the translation impact of changes in
foreign currency exchange rates. More than half of the year-over-year growth was due to the acquisition of Access.
Conversely, the comparative year-over-year growth for TS was negatively impacted by the change to net revenue
reporting for supplier service contracts and by the divestiture of its Enterprise Solutions business during the third
quarter of fiscal 2006, which generated sales of approximately $112 million in fiscal 2006. Excluding the effect of
current year acquisitions, prior year divestitures and the change to net revenue reporting as presented in the
preceding table, TS sales growth would have been 5.5% which was impacted by weakness in microprocessor sales.
On a regional basis, all three regions experienced sales growth with the Americas contributing the majority of the
increase which grew $658.1 million, or 19.1%, year over year. The EMEA region reported sales growth of 20.6%, or
3.3% excluding the translation impact of changes in foreign currency exchange rates of approximately $117 million,
the change to net revenue reporting and the impact of the Access acquisition. The Asia region, which was not
impacted by the Access acquisition, grew sales 34.7%, with more than half of the growth due to the positive impact
of the Azure acquisition. For the Americas and EMEA regions, comparisons to prior year were positively impacted
by the Access acquisition and negatively impacted by the change to net revenue reporting and the business divested
in fiscal 2006 in the Americas.
Avnet’s consolidated sales in fiscal 2006 were $14.25 billion, up $3.19 billion, or 28.8%, over fiscal 2005
consolidated sales of $11.07 billion. Year over year growth was driven primarily by the acquisition of Memec.
Including Memec’s sales in fiscal 2005 on a pro forma basis, Avnet’s consolidated sales grew 6.8% on a delivered
U.S. dollar basis and an estimated 8.3% excluding the translation impact of changes in foreign currency exchange
rates. EM recorded sales of $9.26 billion in fiscal 2006, up $3.00 billion, or 48.0%, over EM’s fiscal 2005 sales of
$6.26 billion. Including Memec’s sales in fiscal 2005 on a pro forma basis, EM’s fiscal 2006 sales grew 8.4% as
compared with the prior year in delivered U.S. dollars and by approximately 10.2% excluding the translation impact
of changes in foreign currency exchange rates, which management estimates reduced EM’s year-over-year sales
growth by approximately $151 million. TS sales in fiscal 2006 were a record $4.99 billion, up $183 million, or
3.8%, over fiscal 2005 sales of $4.81 billion. Excluding the impact of changes in foreign currency exchange rates,
TS fiscal 2006 sales grew approximately 4.9% over the prior year.
Gross Profit and Gross Profit Margins
Consolidated gross profit was $2.05 billion in fiscal 2007, up $209.6 million, or 11.4%, as compared with
fiscal 2006. The gross profit in fiscal 2006 included a charge totaling $9.0 million to write down inventory due
primarily to supplier terminations in connection with the Memec acquisition in fiscal 2006. See Restructuring,
Integration and Other Items for further discussion. Gross profit margin of 13.1% was up 16 basis points as
compared with fiscal 2006 profit margin of 12.9%. Both operating groups contributed to the improvement in gross
profit margins with an increase of 33 basis points at EM and 17 basis points at TS. The impact to gross margins
resulted from the change in the mix of business between EM and TS over the prior year as a result of the Access
acquisition as well as the change from gross revenue to net revenue reporting for supplier service contracts. For EM,
the mix of revenues among small-to-medium businesses and large customers, particularly large EMS customers
discussed previously, positively impacted EM’s gross profit margins. With the addition of Access sales in fiscal
2007, TS sales grew to 38% of consolidated sales compared to 35% of consolidated sales in fiscal 2006 which
impacted consolidated gross margins. The TS business is typically a higher asset velocity business than EM, but is
also a lower gross profit margin business compared with EM.
Consolidated gross profit in fiscal 2006 was $1.84 billion as compared with $1.46 billion in fiscal 2005. Gross
profit margin in fiscal 2006 was 12.9%, down from 13.2% in fiscal 2005. The increase in gross profit dollars was
due primarily to the increase in sales as a result of the acquisition of Memec. As mentioned above, the gross profit in
fiscal 2006 included charges totaling $9.0 million to write down certain inventory due primarily to supplier
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