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Table of Contents
Results of Operations
Executive Summary
Comparative financial results for Avnet were impacted by acquisitions and a weaker US dollar versus the Euro
when comparing fiscal 2008 with fiscal 2007. As presented in the following table, the Company acquired nine
businesses in the eighteen months prior to the end of fiscal 2008 impacting both operating groups.
In addition, a change to net revenue reporting impacted the comparative financial results for Avnet when
comparing fiscal 2007 results to fiscal 2006 and, to a lesser extent, fiscal 2008 results with fiscal 2007. In
conjunction with the acquisition of Access Distribution 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 were
to be classified on a net revenue basis rather than on a gross basis effective the third quarter of fiscal 2007 (referred
to as “the change to net revenue reporting” in this MD&A). Although this change reduced sales and cost of sales and
positively impacted gross and operating profit margins for the Technology Solutions operating group and on a
consolidated basis, it had no impact on operating income, net income, cash flow or the balance sheet.
As mentioned previously, during fiscal 2008, Avnet’s sales growth was driven primarily by acquisitions and the
weakening of the US Dollar as organic sales growth in constant dollars was essentially flat year over year. However,
the Company’s focus on working capital management and cost reduction initiatives resulted in an increase in return
on capital as compared with prior periods. Avnet’s consolidated sales were $17.95 billion for fiscal 2008, up 14.5%
year over year, as a result of 6.7% sales growth at EM and 27.1% at TS, with both operating groups benefiting from
acquisitions. On a pro forma basis, year-over-year sales growth was 4.9% for the Company with EM and TS
contributing 5.0% and 4.7%, respectively. Despite the slowdown in organic growth, the Company improved both
operating income and working capital velocity and generated over $450 million in cash from operations.
Avnet’s consolidated gross profit margin of 12.89% was down 17 basis points from the prior year gross profit
margin of 13.06% and operating income margin of 3.96% declined 37 basis points from 4.33% in prior year,
primarily due to a slowdown in organic growth in certain product lines and a business mix shift as TS, which has
lower gross profit margins than EM, grew to be a larger percentage of consolidated sales as a result of acquisitions.
In response, management took actions during the second half of the fiscal year to adjust the Company’
s cost structure
and, as such, recorded $38.9 million pre-tax in “restructuring, integration and other charges” during fiscal 2008.
Operating efficiency and working capital management remain a key focus of Avnet’s overall value-based
management initiatives to increase return on capital to grow profitability at a faster rate than its growth in revenues.
It is difficult for the Company, as a distributor, to forecast the material trends of the electronic component and
computer products industry, aside from some of the normal seasonality discussed herein, because Avnet does not
typically have material forward-
looking information available from its customers and suppliers beyond a few months
of forecast information by way of incoming order rates. As such, management relies on the publicly available
information published by certain industry groups and other related analyses in evaluating its business plans in the
longer term.
18
Operating
Acquired Business
Group
Region
Acquisition Date
Access Distribution
TS
Americas, EMEA
December 31, 2006
Azure Technologies
TS
Asia/Pac
April 16, 2007
Flint Distribution Ltd.
EM
EMEA
July 5, 2007
Division of Magirus Group
TS
EMEA
October 6, 2007
Betronik GmbH
EM
EMEA
October 31, 2007
ChannelWorx
TS
Asia/Pac
October 31, 2007
Division of Acal plc Ltd.
TS
EMEA
December 17, 2007
YEL Electronics Hong Kong Ltd.
EM
Asia/Pac
December 31, 2007
Azzurri Technology
EM
EMEA
March 31, 2008