Avnet 2007 Annual Report Download - page 29

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the Company’s issuance of $250.0 million of 6.00% Notes due September 1, 2015 and repurchase of $254.1 million
of the Company’s higher rate 8.00% Notes due November 15, 2006 during the first quarter of fiscal 2006.
Other income, net, in fiscal 2007 was $9.9 million as compared with $4.8 million in fiscal 2006 and
$3.5 million in fiscal 2005. The increase in fiscal 2007 other income, net, compared with fiscal 2006 was primarily
the result of higher short-term interest rates in combination with higher cash balances as well as foreign currency
exchange gains. In addition, during fiscal 2007, the Company recorded a benefit in other income due to the recovery
of a non-trade receivable during the first quarter, however, this benefit was offset by equity method investment
losses.
Fiscal 2006 results included higher rate interest income earned on cash balances partially offset by foreign
currency losses. The interest income in fiscal 2006 also included approximately $0.4 million earned on the
investment of the net proceeds from the issuance of the 6.00% Notes during the four week tender period for the
8.00% Notes discussed above. Fiscal 2005 contained foreign currency losses which offset a portion of the interest
income earned on the Company’s cash and cash equivalent balances.
Gain (Loss) on Sale of Business Lines
During fiscal 2007, the Company recorded a gain related to the receipt of contingent purchase price proceeds
from the fiscal 2006 sale of a TS end-user business discussed below. The gain amounted to $3.0 million pre-tax,
$1.8 million after tax and $0.01 per share on a diluted basis. During fiscal 2006, the Company divested two TS end-
user business lines in the Americas and two EM specialty business lines in EMEA. In TS, the Company sold its
Americas end-user server and storage business line to a value-added reseller. As a result of these divestitures, a gain
of $10.9 million pre-tax, $7.3 million after tax and $0.05 per share on a diluted basis was recorded in the third
quarter of fiscal 2006. The Company also contributed cash and certain operating assets and liabilities of its TS
Americas end-user network solutions business into a joint venture with Calence, Inc. in exchange for an investment
interest in the joint venture, called Calence, LLC. In EM, the Company sold two small, non-core business lines in its
EMEA region during the fourth quarter of fiscal 2006 for which no tax benefit was available and, as a result,
recorded a loss of $13.6 million pre-tax, $14.3 million after tax and $0.10 per share on a diluted basis. The total
impact of these divestitures in fiscal 2006 was a net loss of $2.6 million pre-tax, $7.1 million after tax and $0.05 per
share on a diluted basis.
Debt Extinguishment Costs
As discussed further under Liquidity and Capital Resources — Financing Transactions, the Company incurred
debt extinguishment costs in fiscal 2007 and 2006 associated with the tender and early repurchase of a portion of its
outstanding publicly traded debt. In completing these transactions, the Company incurred debt extinguishment
costs, related primarily to premiums and other transaction costs associated with these tenders and early repurchases,
which totaled $27.4 million pre-tax, $16.5 million after tax and $0.11 per share on a diluted basis in fiscal 2007 and
$22.6 million pre-tax, $13.6 million after-tax and $0.09 per share on a diluted basis in fiscal 2006.
Income Tax Provision
Avnet’s effective tax rate on its income before taxes for fiscal 2007 was 33.0% as compared with an effective
tax rate of 35.3% in fiscal 2006 and 29.8% in fiscal 2005. The decrease in the fiscal 2007 effective tax rate over prior
year is attributable to: (i) the mix of pre-tax income towards the lower statutory tax rate jurisdictions; (ii) a similar
dollar amount of net contingency reserves applied against significantly higher pre-tax income; and (iii) the negative
impact increasing prior year’s effective tax rate related to the loss on the sale of an EM business for which no tax
benefit was available.
The increase in the effective rate in fiscal 2006 compared with fiscal 2005 was primarily due to the negative tax
impact of the EM divestiture as discussed above and additional contingency reserves due to the recognition of tax
exposures in the EMEA and Asia regions, partially offset by a favorable settlement of a European audit. Excluding
these items, the effective tax rate would have been lower than the 35% U.S. federal tax rate for fiscal 2006 as a result
of varying statutory tax rates across the jurisdictions in which the Company operates.
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