Avnet 2001 Annual Report Download - page 59

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17. NON-RECURRING ITEMS
Reorganization and integration charges
In the fourth quarter of 2001, the Company recorded a special
charge in connection with the acquisition and integration of
Kent and for costs related to actions taken in response to current
business conditions and other restructuring activity. The charge
amounted to $327,485,000 pre-tax ($80,596,000 included in cost of
sales and $246,889,000 included in operating expenses) and
$236,692,000 after-tax, or $2.01 per share on a diluted basis for the
fourth quarter ($1.99 per share for the year). Approximately
$157,331,000 of the pre-tax charge resulted from the acquisition
of Kent having been accounted for using the “pooling-of-interests”
method. Under this method, items that normally would have been
reflected as goodwill if the purchase method of accounting had
been used were reported in Avnet’s consolidated statement of
income as part of the special charge. These items consist of costs
incurred in completing the acquisition including significant
change-in-control and other executive benefit-related payments
made as a result of the acquisition ($68,343,000 pre-tax), profes-
sional fees for investment banking, legal and accounting services
rendered to both Avnet and Kent ($10,657,000 pre-tax), as well as
adjustments to the assets acquired and liabilities assumed and
other costs of the transaction ($78,331,000 pre-tax).
The balance of the pre-tax charge recorded in the fourth quarter
of 2001, amounting to $170,154,000, relates to a number of actions
taken to cope with market conditions and to strengthen Avnet’s
operations. These actions include cost reductions associated with
the restructuring of the Company’s business, the integration of
recent acquisitions, as well as important cost-cutting actions taken
in response to current business conditions. These special charges
for the other actions the Company has taken fall into a number
of categories including severance, inventory reserves related to
terminations of non-strategic product lines, inventory valuation
adjustments for special inventory purchases to meet customer
requirements which are in excess of what is anticipated to be sold
or returned, write-downs associated with the disposal of fixed
assets, lease terminations, adjustments to the book value of invest-
ments in unconsolidated entities and other items. The unusually
large impact on income taxes related to the special charge is due
primarily to the non-deductibility of certain acquisition-related
costs and the impact of tax rates in foreign jurisdictions. Of the
special charge of $327,485,000 pre-tax, $182,268,000 did not require
the use of cash and $145,217,000 required the use of cash,
$85,164,000 of which had been expended at June 29, 2001.
During the third quarter of fiscal 2000, the Company recorded
$14,823,000 pre-tax and $8,877,000 after-tax ($0.08 per share on a
diluted basis) of incremental special charges associated with: (a)
the integration of Eurotronics B.V. and SEI Macro Group into
EM EMEA ($10,120,000 pre-tax); (b) the integration of JBA
Computer Solutions into CM North America ($3,146,000 pre-tax);
and (c) costs related to the consolidation of EM’s European ware-
housing operations ($1,557,000 pre-tax). Approximately $13,327,000
of the pre-tax charge was included in operating expenses and
$1,496,000 was included in cost of sales, which represented a
non-cash write-down. These charges include severance, inven-
tory reserves related to termination of product lines, write-downs
associated with the disposal of fixed assets and other items. Of
the special charges of $14,823,000 pre-tax, approximately
$7,237,000 did not require an outflow of cash and $7,586,000
required the use of cash, substantially all of which has been
utilized at June 29, 2001.
During the second quarter of fiscal 2000, the Company recorded
$28,030,000 pre-tax and $17,573,000 after-tax ($0.16 per share on
a diluted basis) of incremental special charges associated with: (a)
the integration of Marshall Industries into the Company’s EM and
AAC operations ($18,413,000 pre-tax); (b) the reorganization of
the Company’s EM Asian operations ($5,409,000 pre-tax); (c) costs
related to the consolidation of the Company’s EM European ware-
housing operations ($1,509,000 pre-tax); and (d) costs incurred in
connection with certain litigation brought by the Company
($2,699,000 pre-tax). Approximately $17,739,000 of the pre-tax
charge was included in operating expenses and $10,291,000 was
included in the cost of sales. The charges related to the integra-
tion of Marshall Industries and the reorganization of the Asian
operations are comprised of severance, inventory reserves required
related to supplier terminations, real property lease terminations,
employee and facility relocation costs, special incentive payments
and other items. Of the special charges of $28,030,000 pre-tax,
approximately $11,143,000 did not require an outflow of cash and
$16,887,000 required the use of cash, substantially all of which has
been utilized at June 29, 2001.
Avnet, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
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