Avnet 2002 Annual Report Download - page 82

AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
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 charges requiring the use of cash, $8,620,000 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 is 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 $327,485,000 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 as
discussed above. These items consisted 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
($68,343,000 pre-tax), professional fees for investment banking, legal and accounting services rendered to
both Avnet and Kent ($12,683,000 pre-tax), as well as adjustments to the assets acquired and liabilities
assumed ($76,305,000 pre-tax). The adjustments to the assets acquired and liabilities assumed include
accruals for severance ($4,650,000), write-downs of receivables considered uncollectible ($7,988,000),
inventory reserves related to termination of non-strategic product lines ($20,488,000), write-downs associated
with the disposal of Ñxed assets ($25,081,000), lease terminations ($8,462,000) and other items ($9,636,000).
The balance of the pre-tax charge recorded in the fourth quarter of 2001, amounting to $170,154,000,
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 business, the
integration of recent acquisitions, as well as important cost-cutting actions taken in response to business
conditions. These special charges for the other actions the Company has taken fall into a number of categories
including severance ($28,531,000), inventory reserves related to terminations of non-strategic product lines
($9,440,000), inventory valuation adjustments for special inventory purchases to meet customer requirements
which are in excess of what is anticipated to be sold or returned ($50,668,000), write-downs associated with
the disposal of Ñxed assets ($15,167,000), lease terminations ($21,065,000), adjustments to the book value of
investments in unconsolidated entities ($42,880,000) and other items ($2,403,000). The unusually large
impact on after-tax income 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, $184,024,000 did not require the use of cash and $143,461,000 required the use of cash,
approximately $122,684,000 of which had been utilized at June 28, 2002. The unutilized portion at June 28,
2002 relates primarily to remaining contractual lease commitments, substantially all of which is expected to be
utilized by the end of 2006.
During the third quarter of 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 warehousing 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, inventory reserves related to termination of product
lines, write-downs associated with the disposal of Ñxed assets and other items. Of the special charges of
$14,823,000 pre-tax, approximately $7,237,000 did not require an outÖow of cash and $7,586,000 required the
use of cash, substantially all of which has been utilized at June 28, 2002.
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