Avnet 2003 Annual Report Download - page 33
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Please find page 33 of the 2003 Avnet annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.amounts from Kent's pre-acquisition customers ($8.2 million pre-tax); (2) excess and obsolete inventory,
primarily for customer-speciÑc inventory held by Kent at the acquisition date that was subsequently
determined, through ongoing negotiations with the customers, to require a write-down to net realizable value
($21.6 million pre-tax); and (3) charges to record additional write-downs to approximate fair market value on
held-for-sale properties acquired in the Kent acquisition or to record lease reserves for non-cancelable lease
obligations on properties the Company committed to exit ($15.9 million pre-tax); (4) approximately
$16.0 million pre-tax in cash recoveries of certain charges recorded as part of the restructuring and integration
charges taken in the fourth quarter of 2001.
The remaining pre-tax charge recorded in the fourth quarter of 2002, which amounted to $49.9 million,
included an impairment charge of $36.2 million pre-tax to write-down certain of the Company's investments
in unconsolidated Internet-related businesses to their fair market value and $13.7 million pre-tax for severance
charges taken for workforce reductions, primarily in the Americas region, with more limited reductions in
EMEA and Asia, totaling approximately 850 individuals. The impairments recorded to the Company's
Internet-related investments are considered capital losses for tax purposes and are therefore only deductible to
the extent the Company has available capital gains. At that time, there were no capital gains, available or
forecasted in the foreseeable future, to oÅset these losses. Therefore, the Company generally did not record a
tax beneÑt for these losses.
In the fourth quarter of 2001, the Company recorded restructuring and integration charges 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
$1.99 per share on a diluted basis. 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 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 ($68.3 million pre-tax),
professional fees for investment banking, legal and accounting services rendered to both Avnet and Kent
($12.7 million pre-tax), as well as adjustments to the assets acquired and liabilities assumed ($76.3 million
pre-tax). The adjustments to the assets acquired and liabilities assumed were primarily recorded as a result of
the Company's eÅorts to realize certain synergies of the combined Kent-Avnet operations. In order to achieve
such cost savings in the combined enterprise, elimination of certain duplicative positions, facilities and
inventory was required. These charges included accruals for severance for approximately 130 employees
terminated ($4.6 million pre-tax), write-downs of receivables considered uncollectible ($8.0 million pre-tax),
inventory write-downs related to termination of non-strategic product lines ($20.5 million pre-tax), write-
downs associated with the disposal of Ñxed assets ($25.1 million pre-tax), lease terminations ($8.5 million
pre-tax) and other items ($9.6 million pre-tax).
The balance of the pre-tax charge recorded in the fourth quarter of 2001, amounting to $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 business, the
integration of recent acquisitions, as well as cost-cutting actions taken in response to business conditions.
These charges fall into a number of categories including severance for the elimination of approximately 880
employees, related to the Company's EM, CM and corporate operations in all three global regions
($28.5 million pre-tax), inventory write-downs related to terminations of non-strategic product lines
($9.4 million pre-tax), inventory valuation adjustments for special inventory purchases to meet customer
requirements which are in excess of what is anticipated to be sold or returned ($50.7 million pre-tax), write-
downs associated with the disposal of Ñxed assets ($15.2 million pre-tax), lease terminations ($21.1 million
pre-tax), adjustments to the book value of investments in unconsolidated entities ($42.9 million pre-tax) and
other items ($2.4 million pre-tax). The unusually large impact on after-tax income related to this charge is
due primarily to the non-deductibility of certain acquisition-related costs and the impact of tax rates in foreign
jurisdictions.
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