Avnet 2009 Annual Report Download - page 25

Table of Contents
the Company’s market capitalization declined steadily, which was relatively in line with the decline in the overall
market, and was significantly below book value during the second quarter of fiscal 2009 due primarily to the global
economic downturn’s impact on the Company’s performance and the turmoil in the equity markets. As a result of
these events, the Company determined an interim goodwill impairment test was necessary and performed the interim
test on all six of its reporting units as of December 27, 2008. Based on the test results, the Company determined that
goodwill at four of its reporting units was impaired. Accordingly, during the second quarter of fiscal 2009, the
Company recognized a non-cash goodwill impairment charge of $1.32 billion pre-tax, $1.28 billion after tax and
$8.51 per share to write off all goodwill related to its EM Americas, EM Asia, TS EMEA and TS Asia reporting
units.
During the fourth quarter of fiscal 2009, the Company performed its annual goodwill impairment test which
indicated that three of its six reporting units, including EM Asia and TS EMEA, continued to have fair values below
their carrying values. As a result, the Company was required to recognize the impairment of additional goodwill
which arose subsequent to the second quarter of fiscal 2009 in the EM Asia and TS EMEA reporting units. Of the
non-cash goodwill impairment charges of $62.3 million pre- and after tax and $0.41 per share recognized in the
fourth quarter of fiscal 2009, $41.4 million related to the recently acquired business in Japan, which was assigned to
the EM Asia reporting unit. Accounting standards require goodwill from an acquisition to be assigned to a reporting
unit and also requires goodwill to be tested on a reporting unit level, not by individual acquisition. As noted above,
the annual impairment analysis indicated that the fair value of the EM Asia reporting unit continued to be below its
carrying value. As a result, the goodwill from the recent acquisition was required to be impaired. The remaining
$20.8 million of the impairment charges related to additional goodwill in the TS EMEA reporting unit primarily as a
result of final acquisition adjustments during the purchase price allocation period related to an acquisition for which
the goodwill had been fully impaired in the second quarter of fiscal 2009.
During fiscal 2009, the Company also evaluated the recoverability of its long-lived assets at each of the
reporting units where goodwill was deemed to be impaired. Based upon this evaluation, the Company determined
that certain of its amortizable intangible assets were impaired. As a result, the Company recognized a non-cash
intangible asset impairment charge of $31.4 million pre- and after tax and $0.21 per share during the second quarter
of fiscal 2009. In conjunction with the annual goodwill impairment test, the Company again evaluated the
recoverability of its long-lived assets during the fourth quarter of fiscal 2009 and determined that no impairment had
occurred.
The non-cash impairment charges had no impact on the Company’s compliance with debt covenants, its cash
flows or available liquidity, but did have a material impact on its consolidated financial statements.
Restructuring, Integration and Other Charges
Fiscal 2009
In response to the decline in sales and gross profit margin, the Company initiated significant cost reduction
actions over the past four quarters in order to realign its expense structure with market conditions. As a result, the
Company incurred restructuring, integration and other charges totaling $99.3 million pre-tax, $65.3 million after tax
and $0.43 per share during fiscal 2009 related to the cost reductions as well as integration costs associated with
recently acquired businesses. Restructuring charges included severance of $50.8 million, facility exit-costs of
$29.6 million and other charges of $4.5 million related to contract termination costs, fixed asset write-downs and
other charges. The Company also recorded a reversal of $2.5 million to adjust estimated costs for severance, lease
and other reserves related to prior year restructuring activity which were deemed excessive and that reversal was
credited to “restructuring, integration and other charges.” Integration costs of $11.2 million included professional
fees, facility moving costs, travel, meeting, marketing and communication costs that were incrementally incurred as a
result of the acquisition integration efforts. Other items recorded to “restructuring, integration and other charges”
included a net credit of $1.2 million related to acquisition adjustments for which the purchase allocation period had
closed, a loss of $3.1 million resulting from a decline in the market value of certain small investments that the
Company liquidated, and $3.8 million of incremental intangible asset amortization.
Severance charges related to personnel reductions of approximately 1,900 employees in administrative, finance
and sales functions in connection with the cost reduction actions in all three regions of both operating
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