Avnet 2011 Annual Report Download - page 25

Table of Contents
Company’s most profitable regions. As a result of the poor market conditions through mid-
March of fiscal 2009, the Company took
actions to reduce costs by approximately $200 million on an annualized basis and had expected such actions to be completed by the
end of the June quarter of fiscal 2009. However, based upon third quarter of fiscal 2009 results, the Company announced further
actions to reduce annualized costs by an additional $25 million, bringing the aggregate annual cost reductions announced to
approximately $225 million since March 2008. As of the end of the fourth quarter of fiscal 2009, management estimated that
approximately $200 million in annualized cost savings had been achieved and the remaining cost reduction actions were completed at
the end of September 2009; therefore, the full benefit of the annualized cost savings of $225 million were reflected in the December
quarter of fiscal 2010. In addition, the December quarter of 2010 included cost synergies of approximately $40 million as a result of
acquisition integration activities most of which were completed by the end of fiscal 2009.
Impairment Charges
During fiscal 2009, the Company recognized non-
cash goodwill and intangible asset impairment charges totaling $1.41 billion
pre-tax, $1.38 billion after tax and $9.13 per share.
During the second quarter of fiscal 2009, due to a steady decline in the Company’
s market capitalization due primarily to the
global economic downturn’s impact on the Company’
s performance and the turmoil in the equity markets, 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 require 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 2011
During fiscal 2011, the Company recognized restructuring, integration and other charges of $77.2 million pre-
tax, $56.2 million
after tax and $0.36 per share on a diluted basis associated primarily with the integration of the acquired Bell business. Restructuring
costs included $28.6 million pre-tax for severance and $17.3 million pre-
tax for facility exit costs for lease liabilities, fixed asset write
downs and other related charges associated with vacated facilities and $1.8 million for other charges. Integration costs of $25.1 million
pre-
tax included professional fees associated with legal and IT consulting, facility moving costs, travel, meeting, marketing and
communication costs that were incrementally incurred as a result of the integration activity. Also included in integration costs are
incremental salary and employee benefits costs, primarily of the acquired businesses’ personnel who were retained by Avnet for
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