Avnet 2008 Annual Report Download - page 28

Table of Contents
The severance costs related primarily to severance and other termination benefit payments related to
20 personnel in the TS Americas’ operations who were rendered redundant in Avnet’s ongoing business following
the divestiture of the end-user business lines during the third quarter of fiscal 2006. This included two management-
level employees whose primary responsibilities previously included the management of the divested business lines.
Severance charges in fiscal 2006 also included termination benefits for over 10 personnel in the TS EMEA
operations who were identified as redundant based upon the realignment of certain job functions in that region and
two corporate management-level employees. The facility exit charges related to liabilities for remaining non-
cancelable lease obligations and the write-down of facility-related property, plant and equipment. The impacted
facilities were TS leased facilities in the Americas that were rendered redundant with the divestitures discussed
above, as well as certain TS leased facilities in EMEA that were vacated as part of the realignments of personnel
discussed above. Certain furniture, fixtures and equipment in these facilities were also written off as part of these
charges. Other charges in fiscal 2006 related primarily to asset impairment charges recorded in the second quarter
and fourth quarter of fiscal 2006 totaling $3.6 million for two owned but vacant facilities and certain related fixed
assets — one in EMEA and one in the Americas. The write-down to fair value was based upon management’s
estimates of the current market values and possible selling price, net of selling costs, for these properties. Also
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. Of the
remaining charges, $5.1 million was paid during fiscal 2006. As of June 28, 2008, remaining reserves related to the
non-Memec related restructuring activities taken in fiscal 2006 totaled $0.8 million, which related primarily to
facility exit costs, the majority of which management expects to utilize by fiscal 2013.
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 million 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 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 28, 2008, remaining reserves related to these purchase accounting reserves totaled $10.3 million, of
which $0.4 million related to severance reserves, the majority of which management expects to utilize during fiscal
2009, facility exit costs of $7.9 million and other costs of $2.0 million, the majority of which management expects to
utilize by the end of fiscal 2013. During fiscal 2008, $0.3 million of the reserves initially recorded through purchase
accounting were deemed excessive and were reversed through goodwill.
Operating Income
Operating income for fiscal 2008 was $710.4 million, or 3.96% of consolidated sales, as compared with
operating income of $678.3 million, or 4.33% of consolidated sales, in fiscal 2007. Operating income margin
declined 37 basis points over the prior year primarily due to the results at TS and the mix of business between EM
and TS as described previously in this MD&A. TS reported operating income of $261.0 million as compared with
$232.2 million in fiscal 2007. TS operating income margin declined to 3.42% in fiscal 2008 from 3.87% in fiscal
2007. EM reported operating income of $564.4 million in fiscal 2008 as compared with $529.9 million in fiscal 2007
and operating income margin was 5.46% and 5.47% for fiscal 2008 and 2007, respectively. Corporate
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