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Table of Contents
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
performed an interim analysis to determine the impairment of goodwill and other intangible assets as of
December 27, 2008. The results of the analysis indicated that the fair values of four of the Company’s six reporting
units were below their carrying values as of the end of the second quarter of fiscal 2009. Accordingly, the Company
recognized a non-cash goodwill impairment charge of $1,317,452,000 pre-tax, $1,283,308,000 after-tax and $8.51
per share in its second quarter of fiscal 2009 results.
A two step process is used to test for goodwill impairment. The first step is to determine if there is an indication
of impairment by comparing the estimated fair value of each reporting unit to its carrying value including existing
goodwill. Goodwill is considered impaired if the carrying value of a reporting unit exceeds the estimated fair value.
Upon an indication of impairment, a second step is performed to determine the amount of the impairment by
comparing the implied fair value of the reporting unit’s goodwill with its carrying value. The determination of fair
value in both step one and step two utilized level 3 criteria under fair value measurement standards.
To estimate the fair value of its reporting units for step one, the Company utilized a combination of income and
market approaches. The income approach, specifically a discounted cash flow methodology, included assumptions
for, among others, forecasted revenues, gross profit margins, operating profit margins, working capital cash flow,
perpetual growth rates and long term discount rates, all of which require significant judgments by management.
These assumptions took into account the current recessionary environment and its impact on the Company’s
business. In addition, the Company utilized a discount rate appropriate to compensate for the additional risk in the
equity markets regarding the Company’s future cash flows in order to arrive at a control premium considered
supportable based upon historical comparable transactions.
The results of step one indicated that the goodwill related to the EM Asia, TS EMEA and TS Asia reporting
units was fully impaired. Therefore, the Company only performed step two of the impairment analysis for its EM
Americas reporting unit. Step two of the impairment test required the Company to fair value all of the reporting
unit’s assets and liabilities, including identifiable intangible assets, and compare the implied fair value of goodwill to
its carrying value. The results of step two indicated that the goodwill in the EM Americas reporting unit was also
fully impaired.
Annual impairment test
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 $62,282,000 pre-
and after tax and $0.41 per share recognized in the fourth
quarter, $41,433,000 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 $20,849,000 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.
Goodwill additions and adjustments
The goodwill addition in EM, as presented in the preceding table, was primarily a result of the Abacus, Nippon
Denso and Source Electronics acquisitions. The addition to goodwill in TS was primarily a result of the Horizon and
Ontrack Solutions Pvt Ltd acquisitions (see Note 2). Adjustments to goodwill in both operating groups related
primarily to the identification of intangible assets, net of associated deferred tax liabilities, which were reclassified
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