Avnet 2011 Annual Report Download - page 58

Table of Contents
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table presents the gross amount of goodwill and accumulated impairment since fiscal 2009 as of July 3, 2010 and
July 2, 2011. All of the accumulated impairment was recognized in fiscal 2009.
The Company performs its annual goodwill impairment test on the first day of its fiscal fourth quarter. In addition, if and when
events or circumstances change that would more likely than not reduce the fair value of any of its reporting units below its carrying
value, an interim test would be performed. Based upon the Company’
s annual impairment tests performed for fiscal 2011 and 2010,
there was no impairment of goodwill in the respective fiscal years. During fiscal 2009, the Company recognized goodwill and
intangible asset impairment charges of $1,411,127,000 pre-
tax, $1,376,983,000 after tax and $9.13 per share resulting from an interim
impairment test performed at the end of the second quarter and from the annual impairment test performed during the fourth quarter of
fiscal 2009. The non-cash charge 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.
Fiscal 2009 impairment charges
In the second quarter of fiscal 2009, due to the steady decline in the Company’
s market capitalization primarily related to the
global economic downturn, the Company determined an interim impairment test was necessary. Based upon the test results, it was
determined 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 determining the implied fair value of all of the reporting unit’
s assets and
liabilities, including identifiable intangible assets, and comparing the implied fair value of 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 recessionary
environment at the time the test was being performed 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.
52
Electronics
Technology
Marketing
Solutions
Total
(Thousands)
Gross goodwill at July 3, 2010
$
1,287,736
$
658,307
$
1,946,043
Accumulated impairment
(1,045,110
)
(334,624
)
(1,379,734
)
Carrying value at July 3, 2010
$
242,626
$
323,683
$
566,309
Gross goodwill at July 2, 2011
$
1,397,980
$
866,826
$
2,264,806
Accumulated impairment
(1,045,110
)
(334,624
)
(1,379,734
)
Carrying value at July 2, 2011
$
352,870
$
532,202
$
885,072