Avnet 2006 Annual Report Download - page 31

reserves for remaining non-cancelable lease obligations and write-downs to fair market value of owned assets
located in these facilities that have been vacated. Management also evaluated and elected to discontinue a
number of IT-related initiatives that, in light of recent business restructurings, no longer met the Company's
return on investment standards for continued use or deployment. These charges related to write-offs of
capitalized hardware and software.
Restructuring charges incurred during the second quarter of fiscal 2004 totaled $23.5 million pre-tax,
$16.4 million after-tax, or $0.14 per diluted share. The charges consisted of severance costs ($5.3 million),
charges related to write-downs of owned assets and consolidation of selected facilities ($4.8 million), write-
downs of certain capitalized IT-related initiatives ($12.9 million) and other items ($0.5 million).
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 were primarily used for
warehousing and administrative offices. 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.
Total remaining reserves related to these prior year restructuring charges were $6.7 million at the end of
fiscal 2006. Included in these remaining reserves are $0.5 million for severance costs, the majority of which
management expects to utilize by the end of fiscal 2008. The remaining reserve balance also included
$5.9 million for remaining facility contractual lease commitments, the majority of which will be utilized by the
end of fiscal 2010, although a small portion of the remaining reserves relate to lease payouts that extend to
fiscal 2012. Finally, there were $0.3 million of other reserves, related primarily to remaining contractual
commitments, the majority of which the Company expects to utilize during fiscal 2007.
Loss on Sale of Business Lines, Net
During fiscal 2006, the Company divested two TS end-user business lines in the Americas and two EM
specialty business lines in EMEA. In TS, the Company sold its Americas end-user server and storage business
line to a value-added reseller. The Company also contributed cash and certain operating assets and liabilities
of its TS Americas end-user network solutions business into a joint venture with Calence Inc. in exchange for
an investment interest in the joint venture, called Calence LLC. As a result of these divestitures,
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