Avnet 2015 Annual Report Download - page 36

TableofContents
Goodwill and Intangible Asset Impairment
TheCompanyhasbeensubjecttothefinancialimpactofintegratingacquiredbusinessesandexpensesrelatedtobusiness
restructurings, including those related to businesses acquired and in response to market conditions. In connection with such
events,managementisrequiredtomakeestimatesaboutthefinancialimpactofsuchrestructuringandintegrationactivitiesthat
are inherently uncertain. Accrued liabilities are established based on estimates to cover the cost of severance, facility
consolidation and closure, lease termination fees and the impairment of long-lived assets including acquired intangible assets.
Actualamountsincurredcouldbedifferentfromthoseestimated.
Inassessinggoodwillforimpairment,theCompanyisrequiredtomakesignificantjudgmentsrelatedtothefairvalueofits
reporting units including assumptions about the future operating performance of such reporting units. The Company is also
required to make judgments regarding the evaluation of changes in events or circumstances that would more likely than not
reducethe fair valueofanyof itsreportingunitsbelow their carryingvalue,theresults of whichwoulddeterminewhether an
interim goodwill impairment test must beperformed. Should these assumptions or judgmentschange in the future based upon
marketconditions orshouldthe structure oftheCompany’sreporting unitschangebaseduponchangesinbusiness strategyor
structure,theCompanymayberequiredtoperformaninterimimpairmenttestwhichmayresultingoodwillimpairmentexpense.
Duringfiscal2016,2015and2014,theCompanyperformeditsannualgoodwillimpairmenttestanddeterminedtherewas
nogoodwillimpairmentatanyofitsreportingunits.TheCompanydoesnotbelievetherewereanyreportingunitsthatwereat
riskoffailingthegoodwillimpairmenttestinfiscal2016,butthereweretworeportingunitsforwhichtheestimatedfairvalue
was not substantially in excess of the carrying value of the reporting unit as of the goodwill impairment testing date. The
percentage by which the estimated fair value exceeded carrying value was approximately 7% for TS Asia, which has
approximately4%oftheCompany’stotalgoodwill,andapproximately8%forTSEMEA,whichhasapproximately14%ofthe
Company’stotalgoodwill.
In order to estimate the fair value of its reporting units, the Company uses a combination of an income approach,
specificallyadiscountedcashflowmethodology,andamarketapproach.Thediscountedcashflowmethodologyincludesmarket
participantassumptionsfor,amongotherfactors,forecastedsales,grossprofitmargins,operatingexpenses,cashflows,perpetual
growthrates and long-term discountrates, allofwhich require significant judgmentsandestimates by management whichare
inherently uncertain. The market approach methodology requires significant assumptions related to market multiples, capital
structure and control premiums. These assumptions, judgments and estimates may change in the future based upon market
conditionsorothereventsandcouldresultingoodwillimpairmentexpense.
Long-lived assets, including property, plant andequipment and intangible assets, are reviewed for impairment whenever
eventsorchangesincircumstancesindicatethatthecarryingamountofanassetgroupmaynotberecoverable,whichrequiresthe
Companyto usejudgment.Forpurposes ofrecognitionandmeasurement of animpairmentloss,long-lived assets are grouped
withotherassetsandliabilitiesatthelowestlevelforwhichidentifiablecashflowsarelargelyindependentofthecashflowsof
otherassetsandliabilities(“assetgroup”).Animpairmentisrecognizedwhentheestimatedundiscountedcashflowsexpectedto
resultfromtheuseoftheassetgroupanditseventualdispositionislessthanitscarryingamount.Animpairmentismeasuredas
theamountbywhichanassetgroup’snetbookvalueexceedsitsestimatedfairvalue.Thedeterminationoffairvaluerequiresthe
Companytomakecertainjudgmentsandassumptions.TheCompanyconsidersalong-livedassettobeabandonedwhenithas
ceaseduseofsuchabandonedassetandiftheCompanyhasnointenttouseorrepurposetheassetinthefuture.TheCompany
continually evaluates the carrying value and the remaining economic useful life of all long-lived assets and will adjust the
carryingvalueandremainingusefullifeifandwhenappropriate.
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