Avnet 2006 Annual Report Download - page 86

AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
The following table summarizes the activity associated with the fiscal 2006 restructuring and other
charges related to Memec (excluding $8,977,000 recorded in cost of sales as discussed below and excluding
$21,894,000 in integration costs discussed separately below):
IT-
Severance Facility Related
Costs Exit Costs Costs Other Total
(Thousands)
Fiscal 2006 pre-tax charges ÏÏÏÏÏÏÏÏÏÏ $ 16,352 $ 2,575 $ 2,426 $ 1,232 $ 22,585
Amounts utilized ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (13,308) (1,074) (2,426) (1,232) (18,040)
Other, including foreign currency
translationÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (84) (752) Ì 2 (834)
Balance at July 1, 2006 ÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 2,960 $ 749 $ Ì $ 2 $ 3,711
The restructuring and other charges incurred during fiscal 2006 related to the integration of Memec
totaled $31,562,000 pre-tax ($22,585,000 included in the preceding table and $8,977,000 recorded in cost of
sales as discussed below), $24,182,000 after-tax and $0.16 per share on a diluted basis. The pre-tax charges
included inventory write-downs for terminated lines amounting to $8,977,000. The remaining pre-tax charge
of $22,585,000, which was included in ""Restructuring, integration and other charges'' in the accompanying
consolidated statement of operations, included $16,352,000 for severance costs, $2,575,000 of facility exit costs
related primarily to remaining lease obligations on exited facilities, $2,426,000 for the write-down of certain
capitalized IT-related initiatives, primarily in the Americas, and $1,232,000 for other charges related primarily
to other contractual obligations that will no longer be utilized in the combined Avnet and Memec business.
The charge for terminated inventory lines related to a strategic decision during the first half of fiscal 2006 to
exit certain product lines within EM in the Americas. The charge in the third quarter of fiscal 2006 was a result
of similar strategic decisions made in the EMEA region. The terminated lines were product lines that Avnet
management elected not to continue with the combined Avnet and Memec business. As a result, management
recorded a write-down of the related inventory on hand to fair market value due to the lack of contractual return
privileges when a line is terminated by Avnet. Severance charges incurred during fiscal 2006 related to work
force reductions of over 250 personnel primarily in administrative and support functions in the EMEA and
Americas regions. The positions eliminated were Avnet personnel that were deemed redundant by management
with the integration of Memec into Avnet. The facility exit charges related to liabilities for remaining non-
cancelable lease obligations and the write-down of leasehold improvements and other property, plant and
equipment relating to the facilities being exited. The facilities, which supported administrative and support
functions, and some sales functions, were identified for consolidation based upon the termination of certain
personnel discussed above and the relocation of other personnel into other existing Avnet facilities. The
IT-related charges resulted from management's review of certain capitalized systems and hardware as part of the
integration effort. A substantial portion of this write-off, which was recorded in the first quarter of fiscal 2006,
relates to mainframe hardware that was scrapped due to the purchase of new, higher capacity hardware to handle
the increased capacity needs with the addition of Memec. Similarly, certain capitalized IT assets were written off
when they became redundant either to other acquired systems or new systems under development in the first
quarter of fiscal 2006 as a result of the acquisition of Memec. Other charges in fiscal 2006 related primarily to
certain other contractual obligations and contract termination charges.
Of the $31,562,000 recorded to expense for the Memec-related restructuring activity during fiscal 2006,
$11,616,000 represented non-cash asset write-downs, which consisted primarily of the charge to cost of sales for
inventory write-downs and the write-down of IT and other fixed assets. In addition, certain severance and lease
liabilities in the amount of $1,284,000 were assumed by the buyer of the net assets of a small, non-core EM
business in the EMEA region (see Note 2). The remaining Memec-related charges in fiscal 2006 of $18,662,000
required or will require the use of cash, of which $15,401,000 was paid during fiscal 2006, resulting in a
remaining reserve balance of $3,711,000 including $450,000 due to the impact of foreign currency translation.
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