Avnet 2009 Annual Report Download - page 27

Table of Contents
of the Company’
s continuing focus on operational efficiency, and Avnet employees who were deemed redundant as a
result of the Access integration. The facility exit charges related to vacated Avnet facilities in the Americas and
Japan. Other charges consisted primarily of Avnet IT-related and other asset write-downs and other contract
termination costs. Included in the asset write-downs were Avnet software in the Americas that was made redundant
as a result of the acquisition of Access, Avnet system hardware in EMEA that was replaced with higher capacity
hardware to handle increased capacity due to the addition of Access, and the write-down of certain capitalized
construction costs abandoned as a result of the acquisition. Other charges incurred included contractual obligations
related to abandoned activities, the write-down of an Avnet-owned building in EMEA and Access integration costs.
The write-down of the building was based on management’
s estimate of the current market value and possible selling
price, net of selling costs, for the property. The integration costs related to incremental salary costs, primarily of
Access personnel, who were retained following the close of the acquisition solely to assist in the integration of
Access’ IT systems, administrative and logistics operations into those of Avnet. These personnel had no other
meaningful day-to-day operational responsibilities outside of the integration efforts. Also included in integration
costs are certain professional fees, travel, meeting, marketing and communication costs that were incrementally
incurred solely related to the Access integration efforts.
Of the $13.6 million recorded to expense related to the cost-reduction activities and exit-related activity
associated with the Access integration, $0.7 million represented non-cash write-downs. As of June 27, 2009, the
remaining reserves of $0.2 million related to severance which management expects to be utilized by the end of fiscal
2010.
Operating Income (Loss)
During fiscal 2009, the Company recognized an operating loss of $1.02 billion which included $1.41 billion of
non-cash impairment charges. Excluding the impairment charges, operating income for fiscal 2009 was
$391.8 million, or 2.41% of consolidated sales, as compared with operating income of $710.4 million, or 3.96% of
consolidated sales, in fiscal 2008. In addition, the Company recorded $99.3 million of restructuring, integration and
other charges discussed previously. EM operating income declined 37.2% to $354.5 million and operating income
margin of 3.86% was down 160 basis points from prior year. Although the cost reduction actions at EM have
provided benefits to operating income, the cost savings were not enough to make up for the decline in sales and gross
profit margin. TS operating income of $201.4 million was down 22.9% year over year and operating income margin
of 2.86% was down 56 basis points year over year. Similar to EM, the decline in TS operating margin was due to
lower sales and gross profit margins, in particular in the Americas region, and the benefits from the cost reduction
actions only partially offset the decline. Corporate operating expenses were $64.8 million, a decrease of
$11.3 million as compared with $76.1 million in fiscal 2008.
Operating income for fiscal 2008 was $710.4 million, or 3.96% of consolidated sales, as compared with
operating income of $678.3 million, or 4.33% of consolidated sales, in fiscal 2007. Operating income margin
declined 37 basis points over the prior year primarily due to the results at TS and the mix of business between EM
and TS. TS reported operating income of $261.0 million as compared with $232.2 million in fiscal 2007. TS
operating income margin declined to 3.42% in fiscal 2008 from 3.87% in fiscal 2007. EM reported operating income
of $564.4 million in fiscal 2008 as compared with $529.9 million in fiscal 2007 and operating income margin was
5.46% and 5.47% for fiscal 2008 and 2007, respectively. Corporate operating expenses decreased $0.3 million to
$76.1 million in fiscal 2008 as compared to $76.4 million in fiscal 2007. Included in operating income in both the
current and prior year were restructuring, integration and other charges as described above totaling $38.9 million and
$7.4 million, respectively.
Interest Expense and Other Income (Expense), net
Interest expense for fiscal 2009 was $66.5 million, down $5.8 million, or 8.0%, from interest expense of
$72.3 million in fiscal 2008. The year-over-year decrease in interest expense was primarily the result of lower
average short-term debt outstanding, lower short-term interest rates and the extinguishment of the $300.0 million
2% Convertible Senior Debentures which were put to the Company in March 2009. See Financing Transactions for
further discussion of the Company’s outstanding debt.
24