Avnet 2013 Annual Report Download - page 24

Table of Contents
margin regions in the current fiscal year as the higher gross margin EMEA region represented 28% of the overall EM revenue mix as compared
with 32% in the prior year. TS gross profit margin improved 73 basis points year over year. The year-over-
year improvement was driven by the
western regions, particularly EMEA. The Americas region's gross profit margin benefited from the transfer of the Latin America business to EM
as mentioned previously.
Selling, General and Administrative Expenses
Selling, general and administrative expenses (“SG&A expenses”) were $2.20 billion in fiscal 2013 , an increase of $111.5 million
, or
5.3% , from the prior year. This increase consisted of (i) an increase of approximately $184.4 million
related to expenses from businesses
acquired and (ii) the effects of inflation and other factors, which increased the Company's SG&A expenses by an estimated $61.0 million
,
partially offset by (iii) a decrease of approximately $100.0 million
related to recent cost reduction actions, and (iv) a decrease of approximately
$33.9 million
related to the translation impact of changes in foreign currency exchange rates. Metrics that management monitors with respect to
its operating expenses are SG&A expenses as a percentage of sales and as a percentage of gross profit. In fiscal 2013
, SG&A expenses as a
percentage of sales were 8.7% and were 74.0% as a percentage of gross profit as compared with 8.1% and 68.6% , respectively, in fiscal 2012
.
SG&A expenses as a percentage of gross profit at EM increased 541 basis points year over year, also due to the effects of recent acquisitions as
the related cost savings have not yet been fully attained and due to declines in total gross profit dollars relative to operating expenses. SG&A
expenses as a percentage of gross profit at TS increased 360 basis points year over year due primarily to the effects of the decrease in revenues
as previously described and, to a lesser extent, the effects of recent acquisitions as certain cost synergies have not yet been attained, in particular
in EMEA, and which are not expected to be fully achieved for several quarters while the integration work is in process.
SG&A expenses were $2.09 billion in fiscal 2012 , essentially flat from the prior year, decreasing $7.8 million
. The decrease in SG&A
expenses was primarily a result of (i) approximately $51 million related to a decrease in expenses for the existing business due primarily to cost
reduction actions taken and a decrease in variable expenses related to the revenue decline; (ii) approximately $6 million related to a decrease due
to the translation impact of changes in foreign currency exchange rates, partially offset by (iii) an increase of approximately $49.0 million related
to expenses from businesses acquired. In fiscal 2012 , SG&A expenses as a percentage of sales were 8.1% and were 68.6%
as a percentage of
gross profit as compared with 7.9% and 67.6% , respectively, in fiscal 2011 .
Restructuring, Integration and Other Charges
Fiscal
2013
During fiscal 2013
, the Company continued to take certain actions to reduce costs in both operating groups in response to market
conditions and incurred acquisition and integration costs associated with acquired businesses during the fiscal year. As a result, the Company
recorded restructuring, integration and other charges of $149.5 million . Restructuring charges of $120.0 million consisted of $73.3 million
for
severance, $34.4 million for facility exit costs and fixed asset write-downs, and $12.3 million
for other restructuring charges, including a $6.6
million loss related to the write-down of the net assets and goodwill related to the exit of a non-
integrated business in the EM Americas region.
Integration costs were $35.7 million , of which $8.8 million related to the exit of two multi-
employer pension plans associated with acquired
entities in Japan. Acquisition related charges and adjustments were a credit of $3.2 million , consisting primarily of the reversal of an earn-
out
liability of $11.2 million for which payment is no longer expected to be incurred. The Company recorded a credit of $3.1 million
to adjust
reserves related to prior year restructuring activity that were no longer required. The tax-
effected impact of restructuring, integration, and other
charges was $116.4 million and $0.83 per share on a diluted basis.
Severance charges recorded in fiscal 2013 related to the reduction of over 1,600
employees in sales and business support functions in
connection with the cost reduction actions taken in all three regions in both operating groups with employee reductions of approximately
1,100
in EM, 400 in TS and 150 in business support functions. Facility exit costs for vacated facilities related to 32 facilities in the Americas, 26
in
EMEA and 11 in the Asia region, and consisted of reserves for remaining lease liabilities for exited facilities and the write-
down of the related
fixed assets.
Integration costs incurred were related to the integration of acquired businesses and incremental costs incurred as part of the consolidation
and closure of certain office and warehouse locations. Integration costs included IT consulting costs for system integration assistance, facility
moving costs, legal fees, travel, meeting, marketing and communication costs that were incrementally incurred as a result of the integration
activity. Also, included in integration costs are incremental salary costs associated with the consolidation and closure activities, as well as costs
associated with acquisition activity, primarily related to the acquired businesses' personnel who were retained by Avnet following the close of
the acquisitions solely to assist in the integration of the acquired businesses' IT
systems and administrative and logistics operations into those of
Avnet. These identified personnel have no other meaningful day-to-
day operational responsibilities outside of the integration effort. Acquisition
transaction costs consisted
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