Avnet 2007 Annual Report Download - page 25

Fiscal 2006
During the fiscal year 2006, the Company incurred certain restructuring, integration and other items as a result
of the acquisition of Memec on July 5, 2005, which is discussed further under Memec-related restructuring,
integration and other items. In addition, the Company has incurred restructuring and other charges primarily
relating to actions taken following the divestitures of two TS end-user business lines in the Americas region, certain
cost reduction actions taken by TS in the EMEA region, and other items, which are discussed further under
Restructuring and other charges related to business line divestitures and other actions. The restructuring,
integration and other items incurred for all of these activities totaled $69.9 million pre-tax (including $9.0 million
recorded in cost of sales), $49.9 million after-tax and $0.34 per share on a diluted basis for fiscal 2006.
Memec-related restructuring, integration and other items
During fiscal 2006, the acquired Memec business was being integrated into the Company’s existing EM
operations in all three regions. As a result of the acquisition integration efforts, the Company established and
approved plans to restructure certain of Avnet’s existing operations to accommodate the integration of Memec into
Avnet.
The restructuring and other charges (excluding integration charges discussed below) incurred during fiscal
2006 related to the integration of Memec totaled $31.6 million pre-tax, $24.2 million after-tax and $0.16 per share
on a diluted basis. The pre-tax charges included inventory write-downs for terminated lines amounting to
$9.0 million recorded in “cost of sales” as discussed below. The remaining pre-tax charge of $22.6 million,
which was included in “restructuring, integration and other items” in the accompanying consolidated statement of
operations, included $16.4 million for severance costs, $2.6 million of facility exit costs related primarily to
remaining lease obligations on exited facilities, $2.4 million for the write-down of certain capitalized IT-related
initiatives, primarily in the Americas, and $1.2 million 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 as a result of the Memec acquisition. 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 as a result of 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 due to the integration of Memec. 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 $31.6 million recorded to expense for the Memec-related restructuring activity during fiscal 2006,
$11.6 million 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 $1.3 million were assumed by the buyer of the net assets of a small, non-core EM
business in the EMEA region (see Gain (Loss) on Sale of Business Lines in this MD&A for further discussion). The
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