Avnet 2006 Annual Report Download - page 30

Download and view the complete annual report

Please find page 30 of the 2006 Avnet annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 98

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98

management expects to utilize by fiscal 2013, and other costs of $0.1 million, the majority of which
management expects to utilize by fiscal 2007.
While the above charges related to Avnet personnel, facilities and operations, and are therefore recorded
through Avnet's consolidated statements of operations as ""Restructuring, integration and other charges'', the
Company also recorded numerous purchase accounting adjustments during fiscal 2006 related to the acquired
personnel and operations of Memec. These adjustments were generally recorded as part of the allocation of
purchase price and, therefore, were not recorded in the Company's consolidated statement of operations.
During fiscal 2006, the Company established and approved plans to integrate the acquired operations into all
three regions of the Company's EM operations, for which the Company recorded $73.3 million in exit-related
purchase accounting adjustments. These purchase accounting adjustments consist primarily of $32.5 million
for severance for Memec workforce reductions of over 700 personnel (including senior management,
administrative, finance and certain operational functions) primarily in the Americas and EMEA; $36.2 mil-
lion for lease and other contract termination costs; and $4.6 million for remaining commitments and
termination charges related to other contractual commitments of Memec that will no longer be of use in the
combined business. Of these exit-related purchase accounting adjustments recorded in the fiscal 2006,
$43.1 million was paid out in cash during fiscal 2006 and $7.7 million were non-cash write-downs, leaving
$22.7 million of remaining reserves (including $0.2 million due to the translation impact of foreign currency
exchange since the reserves were established), primarily related to severance, which are expected to be
substantially paid out by the end of fiscal 2008, and lease and other contractual commitment reserves, for
which payments will extend into fiscal 2013.
Fiscal 2005
Although there were no restructuring charges recorded in fiscal 2005, the Company recorded certain
adjustments to reserves totaling $1.3 million during fiscal 2005, which were recorded through ""Selling, general
and administrative expenses''. The adjustments related primarily to the reversal of certain excess legal expense
reserves associated with finalization of termination payments and reversal of excess severance reserves, offset
in part by additional severance costs recorded based upon revised estimates of required payouts. The Company
also reduced certain lease reserves due to modification to sublease and termination assumptions based upon
ongoing market conditions.
Fiscal 2004
During the first and second quarters of fiscal 2004, the Company executed certain restructuring and cost
reduction initiatives designed to continue improving the profitability of the Company. These actions can
generally be broken into three categories: (1) the combination of the Company's former Computer Marketing
(""CM'') and Applied Computing (""AC'') segments into one computer products and services business called
Technology Solutions (""TS''), as discussed in Note 16 to the consolidated financial statements appearing in
Item 15 of this Report; (2) the reorganization of the Company's global IT resources, which had previously
been administered 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 first quarter of fiscal 2004 totaled $32.1 million pre-
tax and $22.1 million after-tax, or $0.18 per share on a diluted basis. The pre-tax charge consisted of severance
costs ($9.4 million), charges related to consolidation of selected facilities ($10.8 million), write-downs of
certain capitalized IT-related initiatives ($6.9 million) and other items, consisting primarily of the write-off of
the remaining unamortized deferred loan costs associated with the Company's multi-year credit facility
terminated in September 2003 ($5.0 million).
Severance costs resulted from workforce reductions of approximately 400 personnel completed during the
first quarter, primarily in executive, support and other non-customer facing functions in the Americas and
EMEA regions. Management also identified 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
24