Avnet 2007 Annual Report Download - page 23

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terminations. In fiscal 2006, the Company’s gross margin was impacted by the mix of business between Avnet’s two
operating groups and mix of sales by region.
Selling, General and Administrative Expenses
Selling, general and administrative (SG&A) expenses in fiscal 2007 were $1.36 billion, an increase of
$18.1 million, or 1.3%, as compared with fiscal 2006. Excluding the translation impact of changes in foreign
currency exchange rates, SG&A expenses were down 1.2%. The year-over-year comparison of expenses was
positively impacted by the divestitures of businesses in the second half of fiscal 2006, further cost-reduction
initiatives during fiscal 2007 (see Restructuring, Integration and Other Items for further discussion) and the synergy
benefits associated with the Memec integration during fiscal 2006. During fiscal 2006, the Company was in the
process of integrating the Memec business into the existing operations of Avnet, with that integration completed by
the end of fiscal 2006. As a result, fiscal 2007 operating expenses reflect the full benefit of the synergies achieved,
whereas fiscal 2006 results reflect only a portion of the synergies as the integration was not completed until the end
of fiscal 2006. In addition, during the second half of fiscal 2007, the Access acquisition was being integrated into
Avnet’s business which was completed as of the end of fiscal 2007. Management estimates that as of the end of fiscal
2007 it has achieved over $15 million of annualized operating expense synergies as a result of the completed
integration, which are expected to be fully realized beginning fiscal 2008.
Two additional metrics which management monitors are SG&A expenses as a percentage of sales and as a
percentage of gross profit. SG&A as a percentage of sales was 8.7% in fiscal 2007, down 75 basis points, as
compared with 9.4% in fiscal 2006. SG&A as a percentage of gross profit was 66.5% in fiscal 2007, down 660 basis
points, as compared with 73.1% in fiscal 2007; however, this metric for fiscal 2006 was negatively impacted by the
$9.0 million line termination charge in prior year (see Restructuring, Integration and Other Items for further
discussion). The year-over-year improvement in both of these metrics is primarily due to the Company’s realization
of operating expense synergies following the acquisition and integration of Memec. The metrics were also
positively impacted by the Company’s ongoing focus on managing levels of operating costs through its various
operational excellence initiatives.
Consolidated SG&A expenses were $1.34 billion, or 9.4% of sales, in fiscal 2006 as compared with
$1.14 billion, or 10.3% of sales, in fiscal 2005. The increase in SG&A dollars over the prior year is a direct
result of the expansion of the overall business following the acquisition of Memec at the beginning of fiscal 2006.
Despite this increase in SG&A expenses, the ratio of SG&A expenses as a percentage of sales improved 84 basis
points over fiscal 2005. The primary driver in the ratio improvement was the realization of synergies as a result of
restructuring and integration actions taken in fiscal 2006. As of the end of fiscal 2006, the Company had taken
actions to remove approximately $150 million of annualized operating expenses from the combined Avnet and
Memec businesses. SG&A expenses as compared to fiscal 2005 were also negatively impacted by incremental
stock-based compensation expense as a result of the adoption of a new accounting pronouncement and the initial
recognition and subsequent amortization of intangible assets associated with the Memec acquisition.
Restructuring, Integration and Other Items
The Company recorded a number of restructuring, integration and other items during fiscal 2007 and 2006.
There were no restructuring charges recorded in fiscal 2005. The fiscal 2007 restructuring, integration and other
items related primarily to cost-reduction initiatives and the acquisition and subsequent integration of Access. The
fiscal 2006 restructuring, integration and other items 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. See
Note 17 to the consolidated financial statements in Item 15 of this Report for a summary of activity within the
restructuring, integration and other charges accounts during the past three years.
Fiscal 2007
During fiscal 2007, the Company incurred certain restructuring, integration and other items as a result of cost-
reduction initiatives in all three regions, the acquisition of Access on December 31, 2006 and other items. The
Company established and approved plans for cost-reduction initiatives across the Company and approved plans to
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