Avnet 2007 Annual Report Download - page 27

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 June 30, 2007, remaining reserves related to the non-Memec related restructuring activities taken in
fiscal 2006 totaled $2.1 million, of which $0.7 million related to severance reserves, the majority of which
management expects to utilize by the end of fiscal 2008, facility exit costs of $1.3 million, the majority of which
management expects to utilize by fiscal 2013, and other costs of $0.1 million, the majority of which management
expects to utilize before the end of fiscal 2008.
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 items”, 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 million for lease and other contract termination
costs; and $4.6 million for remaining commitments and termination charges related to other contractual commit-
ments 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.
As of June 30, 2007, remaining reserves related to these purchase accounting reserves totaled $14.4 million, of
which $0.4 million related to severance reserves, the majority of which management expects to utilize by the end of
fiscal 2008, facility exit costs of $12.0 million and other costs of $2.0 million, the majority of which management
expects to utilize by the end of fiscal 2013. During fiscal 2007, $0.6 million of the reserves initially recorded
through purchase accounting were deemed excessive and were reversed through goodwill.
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.
Operating Income
Operating income for fiscal 2007 was $678.3 million, or 4.3% of consolidated sales, as compared with
operating income of $433.1 million, or 3.0% of consolidated sales, in fiscal 2006. The gross margin and operating
expense trends discussed previously in this MD&A contributed to the 129 basis point improvement in operating
income margin year over year. The operating income margin in fiscal 2007 benefited by 10 basis points as a result of
the change to net revenue reporting for supplier service contracts and was negatively impacted by 5 basis points
from the restructuring, integration and other items in connection with the cost reduction initiatives and the Access
integration activity as well as other items previously discussed, which amounted to $7.4 million pre-tax. In
comparison, operating income for fiscal 2006 was negatively impacted by a total of $69.9 million (0.5% of
27