Avnet 2004 Annual Report Download - page 71

AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
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 Ñrst quarter of Ñscal 2004 totaled $32,153,000 pre-
tax and $22,186,000 after-tax, or $0.18 per diluted share. The pre-tax charge consisted of severance costs
($9,393,000), charges related to consolidation of selected facilities ($10,848,000), write-downs of certain
capitalized IT-related initiatives ($6,909,000) and other items, consisting primarily of the write-oÅ of the
remaining unamortized deferred loan costs associated with the Company's multi-year credit facility termi-
nated in September 2003 as discussed in Note 7 ($5,003,000).
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 $23,465,000 pre-tax,
$16,351,000 after-tax, or $0.14 per diluted share. The charges consisted of severance costs ($5,298,000),
charges related to write-downs of owned assets and consolidation of selected facilities ($4,795,000), write-
downs of certain capitalized IT-related initiatives ($12,850,000) and other items ($522,000).
Severance charges related to workforce reductions of approximately 120 personnel, the majority of whom
staÅed warehousing, administrative and support functions primarily for facilities within TS EMEA operations
that were identiÑed 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 Ñrst quarter of Ñscal 2004 as discussed above. These
charges related to the write-oÅ of capitalized hardware and software. Lastly, the Company's eÅorts 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 signiÑcant
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 $9,430,000, of which
$4,228,000 relates to the CM EMEA computer systems, is included in the facilities and IT-related charges
discussed above.
During the fourth quarter of Ñscal 2004, as part of management's ongoing analysis of the reserves for
various restructuring activities, the Company recorded adjustments to certain of its remaining reserves. The
adjustments occurred primarily in the Company's EM and TS operations in EMEA and related to
adjustments to reduce excess severance reserves based upon revised estimates of statutorily required payouts
and recording of additional charges related to leased facilities due to modiÑcations to sublease and termination
assumptions based upon ongoing market conditions. The Company also negotiated a favorable buyout of a
hardware and software maintenance contract, which resulted in the reversal of certain IT-related reserves.
These adjustments are reÖected on the ""Adjustments'' line item in the above table for Ñscal 2004.
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