Avnet 2004 Annual Report Download - page 72

AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
The combined charges recorded during Ñscal 2004 totaled $55,618,000 pre-tax and $38,537,000 after-tax,
or $0.32 per diluted share.
During the second quarter of Ñscal 2003, the Company executed certain actions as part of its cost
reduction initiatives and, accordingly, recorded charges totaling $106,765,000 pre-tax, $65,750,000 after tax, or
$0.55 per diluted share. The charge consisted of severance costs ($21,700,000 pre-tax), charges related to the
consolidation of selected facilities ($37,359,000 pre-tax) and charges related to certain IT-related initiatives
($47,706,000 pre-tax).
These charges included severance costs and charges related to the consolidation of selected facilities,
taken in response to the business environment. During the second quarter of Ñscal 2003, management
identiÑed a number of facilities in each of the Company's operating groups and its corporate functions, which
covered each of the Company's geographic regions, to be consolidated into other facilities. The facilities were
identiÑed in an eÅort to combine certain logistics and administrative operations wherever possible and
eliminate what would otherwise be duplicative costs. The charges related to reserves for remaining non-
cancelable lease obligations, write-downs of the carrying value of certain owned facilities to market value and
write-downs to fair market value of owned assets located in these leased and owned facilities that were
vacated. Additionally, workforce reductions at these and other facilities worldwide resulted in the termination
of approximately 750 personnel. The impacted personnel were primarily in non-customer facing positions. The
IT-related charges resulted from management's decision during the second quarter of Ñscal 2003 to
discontinue a number of IT-related initiatives that represented insuÇcient beneÑt to the Company if they were
kept in service or continued to be developed. These charges included the write-oÅ of capitalized hardware,
software and software licenses.
During the fourth quarter of Ñscal 2003, the Company executed certain additional actions that resulted in
charges totaling $6,605,000 pre-tax. The incremental impact of these actions was substantially oÅset by
certain adjustments that the Company recorded, also in the fourth quarter of Ñscal 2003, primarily relating to
certain of the reserves recorded from the restructuring activity in the second quarter of Ñscal 2003. The new
charge activity, mostly for severance and consolidation of selected facilities, related to each of the Company's
three operating groups and its corporate functions in the Americas and EMEA regions. The additional census
reductions totaled approximately 175 and resulted primarily from: (1) EM's decision to combine its Cilicon
and RF and Microwave sales divisions; and (2) TS's decision to reduce its participation in certain market
segments where proÑtability of the products in question have not yielded acceptable economic returns to the
Company. The fourth quarter adjustments to prior restructuring and other charges reÖect changes in estimates
from the time the charges and applicable reserves were initially recorded, relating to: (1) reserves for
severance and for leases and other contractual commitments that were determined to be excessive during the
fourth quarter based upon payments made or still to be made and/or based upon more favorable than
anticipated sublease or lease buyout arrangements; and (2) an adjustment, based upon estimated sales price
net of costs to sell as derived from current market studies and comparable sales, of a portion of a write-down
that was recorded in the second quarter of Ñscal 2003 related to an owned facility that was vacated and
classiÑed as held for sale during that quarter.
In the fourth quarter of Ñscal 2002, the Company recorded charges representing a write-down in value of
certain assets acquired in the Ñscal 2001 acquisition of Kent Electronics Corporation (""Kent'') and certain
other charges taken in response to business conditions. The charge totaled $79,623,000 pre-tax ($21,600,000
included in cost of sales and the remaining $58,023,000 included as a component of operating expenses) and
$62,084,000 after tax, or $0.52 per share on a diluted basis.
The Kent-related items resulted from the acquisition of Kent being accounted for using the ""pooling-of-
interests'' method of accounting for the acquisition. These items related speciÑcally to assets or obligations
that were on the books of Kent at the acquisition and, therefore, under the ""pooling-of-interests'' method,
these items that normally would have been reÖected as adjustments to goodwill if the purchase method of
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