Avnet 2005 Annual Report Download - page 28

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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 that were disposed of, is
included in the facilities and IT-related charges discussed above.
During the fourth quarter of fiscal 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 modifications 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. The
net amount of these adjustments was less than $0.1 million.
The combined charges recorded during fiscal 2004 totaled $55.6 million pre-tax and $38.5 million after-
tax, or $0.32 per diluted share. Approximately $24.2 million of these pre-tax charges required the use of cash
with the remaining $31.4 million representing non-cash write-downs as discussed in greater detail above.
Fiscal 2003
During the second quarter of fiscal 2003, the Company executed certain actions as part of its cost
reduction initiatives and, accordingly, recorded charges totaling $106.8 million pre-tax, $65.7 million after tax,
or $0.55 per diluted share. The charge consisted of severance costs ($21.7 million pre-tax), charges related to
the consolidation of selected facilities ($37.4 million pre-tax) and charges related to certain IT-related
initiatives ($47.7 million pre-tax).
Charges related to severance costs and the consolidation of selected facilities were taken in response to
the business environment. During the second quarter of fiscal 2003, management identified 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 identified in an
effort 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 fiscal 2003 to discontinue a number of IT-related
initiatives that represented insufficient benefit to the Company if they were kept in service or continued to be
developed. These charges included the write-off of capitalized hardware, software and software licenses.
During the fourth quarter of fiscal 2003, the Company executed certain additional actions that resulted in
charges totaling $6.6 million pre-tax. The incremental impact of these actions was substantially offset by
certain adjustments that the Company recorded, also in the fourth quarter of fiscal 2003, primarily relating to
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