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This excerpt taken from the AVT 10-Q filed May 8, 2006. Preliminary
acquisition-related exit activity accounted for in purchase
accounting
As a result of the acquisition, 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 $66,586,000 in preliminary exit-related
purchase accounting adjustments during the nine months of fiscal
2006. These purchase accounting adjustments consist primarily of
severance for Memec workforce reductions, non-cancelable lease
commitments and lease termination charges for leased facilities,
and other contract termination costs associated with the exit
activities.
The following table summarizes the reserves related to exit
activities that have been preliminarily established through
purchase accounting and the related activity that has occurred
during the nine months of fiscal 2006:
Total amounts utilized for exit-related activities during the
first nine months of fiscal 2006 consisted of $38,676,000 in
cash payments and $8,405,000 in non-cash write-downs.
The purchase accounting reserves established for severance are
for reductions of workforce acquired from Memec relating to over
700 personnel primarily in the Americas and EMEA regions,
including reductions in senior management, administrative,
finance and certain operational functions. These reductions are
based on management’s assessment of redundant Memec
positions compared with existing Avnet positions and are driven
primarily by completed and current consolidations of Memec
facilities into Avnet facilities. Severance reserves,
particularly those estimated to date for the EMEA region, may be
adjusted during the purchase price allocation period because
these costs are subject to local regulations and approvals.
The costs associated with the consolidation of over 60 Memec
facilities are presented in Facility Exit Reserves/Write-downs
in the table above and include estimated future payments for
non-cancelable leases, early lease termination costs, and
write-downs or write-offs of Memec owned assets in these
facilities, including capitalized equipment and leasehold
improvements. These actions relate primarily to facilities
located in the Americas and EMEA. These reserves are subject to
adjustment based on final analyses of the ultimate liabilities.
The other reserves in the table above relate primarily to
remaining commitments and termination charges related to other
contractual commitments of Memec that will no longer be of use
in the combined business.
Estimated purchase accounting adjustments may change as the
Company continues to execute its integration plan, particularly
as it relates to EMEA severance and facility exit costs.
However, the Company expects to complete all actions encompassed
in the plan by the end of fiscal 2006. Cash payments for
severance are expected to be substantially paid out before the
end of fiscal 2007, whereas reserves for other contractual
commitments, particularly for certain lease commitments, will
extend into fiscal 2010.
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