Avnet 2011 Annual Report Download - page 27

Table of Contents
Severance charges recorded in fiscal 2009 related to personnel reductions of approximately 1,900 employees in administrative,
finance and sales functions in connection with the cost reduction actions in all three regions of both operating groups with employee
reductions of approximately 1,400 in EM, 400 in TS and the remaining from centralized support functions. Exit costs for vacated
facilities related to 29 facilities in the Americas, 13 in EMEA and three in Asia/Pac and consisted of reserves for remaining lease
liabilities and the write-
down of leasehold improvements and other fixed assets. The total amounts utilized during fiscal 2011
consisted of $9.4 million in cash payments and $5.4 million related to adjustments to reserves and foreign currency translation. As of
July 2, 2011, the remaining reserves totaled $5.9 million, of which $0.3 million related to severance reserves which are expected to be
utilized by the end of fiscal 2012 and $5.6 million related to remaining facility exit cost reserves which are expected to be utilized by
the end of fiscal 2015.
Operating Income (Loss)
During fiscal 2011, the Company generated operating income of $930.0 million, an increase of 46.3% as compared with
operating income of $635.6 million in fiscal 2010. The increase in operating income was attributable to the impact of acquisitions and
the growth in gross profit dollars associated with the 17.1% organic sales growth. Consolidated operating income margin was 3.5%
and 3.3% in fiscal 2011 and 2010, respectively. Both periods included restructuring, integration and other charges as described in
Restructuring, Integration and Other Charges
above. Excluding these charges, operating income for fiscal 2011 was $1.01 billion, or
3.8% of consolidated sales, as compared with operating income of $661.0 million, or 3.5% of consolidated sales, for fiscal 2010. EM
operating income of $832.4 million increased 69.3% year over year and operating income margin increased 105 basis points to 5.5%.
All three regions within EM contributed, but the improvement was primarily driven by the operating leverage in the EMEA region
with its 31.9% year-over-
year revenue growth. TS operating income of $286.7 million increased 13.9% year over year while operating
income margin declined 57 basis points year over year to 2.5% due primarily to lower gross profit margins in the EMEA region which
includes lower operating margins of the acquired businesses as compared with the other TS businesses. Corporate operating expenses
were $112.0 million in fiscal 2011 as compared with $82.3 million in fiscal 2010 primarily due to net periodic pension expense
recognized in fiscal 2011 compared with pension income recognized in fiscal 2010.
Operating income for fiscal 2010 was $635.6 million, or 3.3% of consolidated sales, as compared with an operating loss of
$1.02 billion for fiscal 2009. Both periods included restructuring, integration and other charges and the prior year included impairment
charges as was previously mentioned in this MD&A. Excluding these charges, operating income for fiscal 2010 was $661.0 million,
or 3.5% of consolidated sales, as compared with operating income of $491.5 million, or 3.0% of consolidated sales, for fiscal 2009.
EM operating income increased 38.7% to $491.6 million for fiscal 2010 and its operating income margin improved 62 basis points to
4.5% as compared with fiscal 2009 as all three regions contributed to the improvement. EM’
s operating income margin improved year
over year in each respective quarter of fiscal 2010 and ended the June quarter at 5.6% which was the first time in two years that EM’
s
operating income margin reached that level and was within the target range as established by management. TS operating income
increased 25.0% to $251.7 million for fiscal 2010 and operating income margin improved 21 basis points to 3.1% as compared with
fiscal 2009. TS continued to incur incremental expenses as it made additional investments in Asia, particularly in China. Corporate
operating expenses were $82.3 million in fiscal 2010 as compared with $64.5 million in fiscal 2009. The prior year corporate
operating expenses were unusually low due to the economic downturn and its impact on the accrual for equity compensation which is
based upon performance targets. Conversely, corporate expenses in the fiscal 2010 are higher than typical primarily due to an increase
in incentive compensation driven by the Company’
s financial results for fiscal 2010 which exceeded established targets and were
significantly higher as compared with fiscal 2009.
Interest Expense and Other Income (Expense), net
Interest expense for fiscal 2011 was $92.5 million, up $30.7 million, or 49.7% from interest expense of $61.7 million in fiscal
2010. The year-over-
year increase in interest expense was due to an increase in debt used to fund the acquisitions of businesses and
the increase in working capital to support the significant growth in sales.
Interest expense for fiscal 2010 was $61.7 million, down $16.9 million, or 21.5%, from interest expense of $78.7 million in fiscal
2009. During the first quarter of fiscal 2010, the Company adopted an accounting standard which required retrospective application of
the standard’s provisions to prior years which resulted in recognizing incremental non-
cash interest expense of $12.2 million in
addition to the previously reported interest expense of $66.5 million in fiscal 2009 (see footnote (a) to Item 6.
Selected Financial Data
in this Form 10-K). Excluding the non-cash interest expense, the year-over-
year decrease in interest expense was due primarily to the
elimination of interest on the Company’
s $300.0 million 2% Convertible Senior Debentures which were extinguished in March 2009.
See Financing Transactions for further discussion of the Company’s outstanding debt.
24