Avnet 2004 Annual Report Download - page 30

The otherwise favorable rate impacts from the mix of international proÑts in Ñscal 2002 were oÅset by the
impact of the Company's charges to impair its investment in certain unconsolidated Internet-related
businesses, which charges were not deductible for tax purposes (see Restructuring and Other Charges for
further discussion). As a result, the eÅective tax rate in Ñscal 2002 was 30.1% as compared with 41.9% in Ñscal
2003.
Net Income (Loss)
As a result of the factors described in the preceding sections of this MD&A, the Company's net income
was $72.9 million, or $0.60 per share on a diluted basis, in Ñscal 2004 as compared with a net loss of
$46.1 million, or $0.39 per share on a diluted basis, in Ñscal 2003 and a net loss before cumulative eÅect of
change in accounting principle of $84.4 million, or $0.71 per share on a diluted basis, in Ñscal 2002. These
results include the negative after-tax impact of restructuring and other charges and debt extinguishment costs
of $52.8 million, or $0.44 per share on a diluted basis, in Ñscal 2004, $73.9 million, or $0.62 per share on a
diluted basis, in Ñscal 2003 and $62.1 million, or $0.52 per share on a diluted basis, in Ñscal 2002.
Change in Accounting Principle Ì Goodwill
The Company adopted the Financial Accounting Standards Board (""FASB'') Statement of Financial
Accounting Standards No. 142 (""SFAS 142''), Goodwill and Other Intangible Assets, which establishes
Ñnancial accounting and reporting for acquired goodwill and other intangible assets. The Company's
mechanism for adoption of SFAS No. 142 is further discussed in Note 6 to the consolidated Ñnancial
statements appearing in Item 15 of this Report. As a result of transition impairment provisions of SFAS 142,
the Company recorded an impairment charge of $580.5 million, or $4.90 per share on a diluted basis, in Ñscal
2002, which was recorded as a cumulative eÅect of a change in accounting principle in the Ñrst quarter of
Ñscal 2002.
The magnitude of the transition impairment charge was signiÑcantly impacted by the timing of the
eÅective date of when the fair value analysis was performed and the designation of the reporting unit structure.
Since the Company adopted SFAS 142 on June 30, 2001, the fair value analysis was required to be completed
as of that date. Due to the diÇcult business and economic conditions at that date, which severely impacted the
market sectors in which the Company operates, and the uncertainty as to when such conditions would
materially improve, the fair value of the Company's businesses was signiÑcantly less than it might have been at
other times. In other words, in a cyclical business, the timing of a valuation such as this may be an important
factor in the outcome of the valuation exercise. The reporting units with the most signiÑcant impairment of
goodwill are in Europe where the Company had not yet generated an acceptable level of proÑts and cash Öows.
In addition, the deÑned reporting unit structure resulted in an impairment of goodwill which includes goodwill
related to certain recent acquisitions that otherwise might not have been impaired.
The Company conducts its periodic test for goodwill impairment annually, on the Ñrst day of the Ñscal
fourth quarter. The Company's annual impairment tests in Ñscal 2004, 2003 and 2002 have yielded no
additional impairments to the carrying value of the Company's goodwill.
Critical Accounting Policies
The Company's consolidated Ñnancial statements have been prepared in accordance with U.S. GAAP.
The preparation of these consolidated Ñnancial statements requires the Company to make estimates and
assumptions that aÅect the reported amounts of assets, liabilities, revenues and expenses during the reporting
period. These estimates and assumptions are based upon the Company's continuous evaluation of historical
results and anticipated future events. Actual results may diÅer from these estimates under diÅerent
assumptions or conditions.
The Securities and Exchange Commission deÑnes critical accounting polices as those that are, in
management's view, most important to the portrayal of the Company's Ñnancial condition and results of
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