Avnet 2005 Annual Report Download - page 79

AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
During the second quarter of fiscal 2003, the Company executed certain actions as part of its cost
reduction initiatives and, accordingly, recorded charges totaling $106,765,000 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).
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 $6,605,000 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
certain of the reserves recorded from the restructuring activity in the second quarter of fiscal 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 profitability of the products in question have not yielded acceptable economic returns to the
Company. The fourth quarter adjustments to prior restructuring and other charges reflect 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 fiscal 2003 related to an owned facility that was vacated and
classified as held for sale during that quarter.
In all periods, to the extent owned facilities, equipment or IT-related assets were written down as part of
these charges, the write-downs were to estimated fair value based upon management's estimates of asset value
from historical experience and/or analyses of comparable facilities or assets. Particularly in the case of IT-
related initiatives, many of the assets were written off entirely as there is no potential to sell the related assets
or otherwise realize value of the assets in the business. In such cases, the assets have generally been disposed
of by the Company.
As of July 2, 2005, the Company's remaining reserves for restructuring and other related activities totaled
$12,358,000. Of this balance, $1,419,000, relates to remaining severance reserves the majority of which the
Company expects to utilize during fiscal 2006. Reserves for $10,477,000 relate to reserves for contractual lease
commitments (shown as Facility Exit Costs in the table at the beginning of this Note), substantially all of
which the Company expects to utilize by the end of fiscal 2007. The IT-related and other reserves, which total
71