Avnet 2006 Annual Report Download - page 29

into those of Avnet. Generally, these identified personnel were retained for nine months or less following the
close of the acquisition. These personnel had no other meaningful day-to-day operational responsibilities
outside of the integration efforts. Also included in integration costs are certain professional fees, travel,
meeting, marketing and communication costs that were incrementally incurred solely related to the Memec
integration efforts. Professional fees included primarily consulting and legal advice associated with the efforts
to merge the numerous legal entities that exist globally between the Avnet and Memec operations. Integration
costs, along with restructuring and other charges, are presented separately from selling, general and
administrative expenses. All integration costs recorded in fiscal 2006 represent amounts incurred and paid
during fiscal 2006.
Restructuring and other charges related to business line divestitures and other actions
During the third quarter of fiscal 2006, the Company divested two of its end-user business lines in
TS Americas (see Loss on Sales of Business Lines in this MD&A for further discussion). As a result,
restructuring charges were incurred due to certain actions taken by the Company following these divestitures.
The Company also incurred restructuring costs and other charges relating to certain cost-cutting measures and
other actions taken by TS in the EMEA region and certain actions at corporate in fiscal 2006. The
restructuring and other charges incurred during the fiscal 2006 related to these actions totaled $16.5 million
pre-tax, $11.0 million after-tax and $0.08 per share on a diluted basis. The year-to-date pre-tax charges, which
are included in ""Restructuring, integration and other charges'' in the accompanying consolidated statement of
operations, consisted of severance costs of $5.9 million related to TS operations in the Americas and EMEA
regions, facility exit costs in the Americas and EMEA regions totaling $6.5 million, and $4.1 million for other
charges. Other charges included $3.2 million pre-tax, which related primarily to a curtailment charge resulting
from a small UK-based pension plan that the Company elected to terminate, $1.8 million related to the
reassessment of an existing environmental liability, $0.4 million of other charges, and a reversal of $1.3 million
for charges recorded through restructuring charges in prior fiscal years primarily in TS EMEA.
The severance costs related primarily to severance and other termination benefit payments related to 20
personnel in the TS Americas' operations who were rendered redundant in Avnet's ongoing business following
the divestiture of the end-user business lines during the third quarter of fiscal 2006. This included two
management-level employees whose primary responsibilities previously included the management of the
divested business lines. Severance charges in fiscal 2006 also included termination benefits for over 10
personnel in the TS EMEA operations who were identified as redundant based upon the realignment of
certain job functions in that region and two corporate management-level employees. The facility exit charges
related to liabilities for remaining non-cancelable lease obligations and the write-down of facility-related
property, plant and equipment. The impacted facilities were TS leased facilities in the Americas that were
rendered redundant with the divestitures discussed above, as well as certain TS leased facilities in EMEA that
were vacated as part of the realignments of personnel discussed above. Certain furniture, fixtures and
equipment in these facilities were also written off as part of these charges. Other charges in fiscal 2006 related
primarily to asset impairment charges recorded in the second quarter and fourth quarter of fiscal 2006 totaling
$3.6 million for two owned but vacant facilities and certain related fixed assets Ì one in EMEA and one in
the Americas. The write-down to fair value was based upon management's estimates of the current market
values and possible selling price, net of selling costs, for these properties. Also included in other charges is the
pension plan curtailment charge and environmental liability charge noted previously.
Of the $16.5 million recorded to expense for these restructuring and other charges during fiscal 2006,
$3.3 million represented non-cash asset write-downs, which consisted primarily of the write-down to fair value
of the owned facilities in EMEA and the Americas and certain furniture, fixtures and equipment in leased
facilities. The remaining charges in fiscal 2006, amounting to $13.2 million, required or will require the use of
cash, of which $5.1 million was paid during fiscal 2006.
As of July 1, 2006, remaining reserves related to the non-Memec related restructuring activities taken in
fiscal 2006 totaled $6.4 million, of which $4.0 million related to severance reserves, the majority of which
management expects to utilize by fiscal 2008, facility exit costs of $2.3 million, the majority of which
23