Avnet 2002 Annual Report Download - page 33

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The impairments recorded to the Company's investments are considered capital losses for tax purposes and are
therefore only deductible to the extent the Company has available capital gains. As there are no capital gains
to oÅset these losses currently or forecasted in the foreseeable future, the Company generally has not recorded
a tax beneÑt for these losses. The timing of the impairment charge to the investments is a function of the
timing with which Ñnancial and other information regarding these ventures typically becomes available to the
Company. Although management evaluates these investments for potential impairment throughout the year, a
charge to record any impairment is not recorded until management possesses suÇcient information to reach a
deÑnitive conclusion as to the realizable value of the investments.
Of the special charge of $79.6 million pre-tax recorded in the fourth quarter of 2002, $77.9 million did not
require the use of cash and $1.7 million required the use of cash (net of the $16.0 million in recoveries
discussed above), of which $8.6 million remains unexpended at June 28, 2002 related primarily to remaining
payments for severance, substantially all of which is scheduled to be utilized during 2003, and for contractual
lease commitments, substantially all of which are expected to be utilized by the end of 2007.
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 business conditions and other
restructuring activity. The charge amounted to $327.5 million pre-tax ($80.6 million included in cost of sales
and $246.9 million included in operating expenses) and $236.7 million after-tax, or $2.01 per share on a
diluted basis for the fourth quarter ($1.99 per share for the year). Of the total charge of $327.5 million,
approximately $143.5 million required an outÖow of cash, of which approximately $122.7 million had been
utilized at June 28, 2002. The unutilized portion relates primarily to remaining contractual lease commit-
ments, substantially all of which are expected to be utilized by the end of 2006. 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.
Approximately $157.3 million of the pre-tax charge resulted from the acquisition of Kent having been
accounted for using the ""pooling-of-interests'' method as described above. These items consist of costs
incurred in completing the acquisition, including signiÑcant change-in-control and other executive beneÑt-
related payments made as a result of the acquisition ($68.3 million), professional fees for investment banking,
legal and accounting services rendered to both Avnet and Kent ($12.7 million), as well as adjustments to the
assets acquired and liabilities assumed ($76.3 million). The adjustments to the assets acquired and liabilities
assumed include accruals for severance ($4.6 million), write-downs of receivables considered uncollectible
($8.0 million), inventory reserves related to termination of non-strategic product lines ($20.5 million), write-
downs associated with the disposal of Ñxed assets ($25.1 million), lease terminations ($8.5 million) and other
items ($9.6 million).
The balance of the charge recorded in the fourth quarter of 2001, amounting to approximately
$170.2 million, related to a number of actions taken to cope with market conditions and to strengthen Avnet's
operations. These actions included cost reductions associated with the reorganization of the Company's
businesses, the integration of the recent acquisitions, as well as important cost-cutting actions taken in
response to business conditions. These special charges fall into a number of categories including severance
($28.5 million), inventory reserves related to terminations of non-strategic product lines ($9.4 million),
inventory valuation adjustments for special inventory purchases to meet customer requirements which were in
excess of what was anticipated to be sold or returned ($50.7 million), write-downs associated with the disposal
of Ñxed assets ($15.2 million), lease terminations ($21.1 million), adjustments to the book value of
investments in unconsolidated entities ($42.9 million) and other items ($2.4 million).
During 2000, the Company recorded $49.0 million pre-tax ($37.2 million included in operating expenses
and $11.8 million included in cost of sales), $30.4 million after-tax and $0.28 per share on a diluted basis of
incremental special charges associated with (1) the integration of acquired businesses into the Company as
described below ($31.7 million), (2) the reorganization of EM's European operations ($9.2 million),
consisting primarily of costs related to the centralization of warehousing operations, (3) the reorganization of
EM Asian operations ($5.4 million) and (4) costs incurred in the second quarter in connection with its
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