Avnet 2004 Annual Report Download - page 26

Restructuring and Other Charges
The Company recorded a number of restructuring and other charges during the last three Ñscal years.
These charges relate primarily to three items: (1) the reorganization of the Company's operations in each of
the three major regions of the world in which the Company operates, generally taken in response to business
conditions at the time of the charge; (2) charges in Ñscal 2002 stemming from acquisition and integration of
Kent Electronics Corporation (""Kent''), which was accounted for using the ""pooling-of-interests'' method of
accounting; and (3) charges to record impairment in the Company's Internet-related investments. See
Note 17 to the consolidated Ñnancial statements appearing in Item 15 of this Report for a detail of activity
within the restructuring and other charge accounts during the past three years.
Fiscal 2004
During the Ñrst and second quarters of Ñscal 2004, the Company executed certain restructuring and cost
reduction initiatives designed to continue improving the proÑtability of the Company. These actions can
generally be broken into three categories: (1) the combination of CM and AC as discussed in Item 1 of this
Report and in Note 16 to the consolidated Ñnancial statements appearing in Item 15 of this Report; (2) the
reorganization of the Company's global IT resources, which had previously been administered generally on a
separate basis within each of the Company's operating groups; and (3) various other reductions within EM
and certain centralized support functions.
Restructuring and other charges incurred during the first quarter of fiscal 2004 totaled $32.1 million pre-tax
and $22.1 million after-tax, or $0.18 per diluted share. The pre-tax charge consisted of severance costs
($9.4 million), charges related to consolidation of selected facilities ($10.8 million), write-downs of certain
capitalized IT-related initiatives ($6.9 million) and other items, consisting primarily of the write-off of the
remaining unamortized deferred loan costs associated with the Company's multi-year credit facility terminated
in September 2003 as discussed in Liquidity and Capital Resources Ì Financing Transactions ($5.0 million).
Severance costs resulted from workforce reductions of approximately 400 personnel completed during the
Ñrst quarter, primarily in executive, support and other non-customer facing functions in the Americas and
EMEA regions. Management also identiÑed a number of facilities for consolidation primarily in the Americas
and EMEA regions. These facilities generally related to certain logistics and warehousing operations as well as
certain administrative facilities across both operating groups and at the corporate level. The charges related to
reserves for remaining non-cancelable lease obligations and write-downs to fair market value of owned assets
located in these facilities that have been vacated. Management also evaluated and elected to discontinue a
number of IT-related initiatives that, in light of recent business restructurings, no longer met the Company's
return on investment standards for continued use or deployment. These charges related to write-oÅs of
capitalized hardware and software.
Restructuring charges incurred during the second quarter of Ñscal 2004 totaled $23.5 million pre-tax,
$16.4 million after-tax, or $0.14 per diluted share. The charges consisted of severance costs ($5.3 million),
charges related to write-downs of owned assets and consolidation of selected facilities ($4.8 million), write-
downs of certain capitalized IT-related initiatives ($12.9 million) and other items ($0.5 million).
Severance charges related to workforce reductions of approximately 120 personnel, the majority of whom
staffed warehousing, administrative and support functions primarily for facilities within TS EMEA operations
that were identified for consolidation as part of the combination of CM and AC. A smaller portion of these
charges also impacted operations in the Americas. The combination of CM and AC in EMEA also led to
charges related to reserves for remaining non-cancelable lease obligations and write-downs to fair market value
of owned assets located in the facilities that were vacated. The facilities primarily served in warehousing and
administrative capacities. Management also evaluated and elected to discontinue a number of IT-related
initiatives similar to the decisions also reached in the first quarter of fiscal 2004 as discussed above. These
charges related to the write-off of capitalized hardware and software. Lastly, the Company's efforts to combine
CM and AC in EMEA resulted in the decision to merge the former CM EMEA operations onto the computer
systems that have historically been used in the AC EMEA business. The change in the use of this significant
asset of CM EMEA generated a need to analyze the group of long-lived assets within the former CM EMEA
operations for impairment. As a result of this analysis, the Company recorded an impairment charge to write-
down certain long-lived assets to their estimated fair market values. This charge, totaling $9.4 million, of which
$4.2 million relates to the CM EMEA computer systems, is included in the facilities and IT-related charges
discussed above.
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