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Impairment of Goodwill and Other Long-Lived Assets
9 Months Ended
Mar. 30, 2012
Impairment Of Goodwill And Other Long Lived Assets [Abstract]  
Impairment Of Goodwill And Other Long-Lived Assets

Note N — Impairment of Goodwill and Other Long-Lived Assets

 

We test our goodwill and other indefinite-lived intangible assets for impairment annually, or under certain circumstances, more frequently, such as when events or circumstances indicate there may be impairment. Indications of potential impairment of goodwill related to Broadcast Communications (which is part of our Integrated Network Solutions segment) were present at the end of the third quarter of fiscal 2012 resulting from the following circumstances and other factors: (i) an unanticipated revenue decline and operating loss for Broadcast Communications for the third quarter of fiscal 2012 (as a result of weaker demand in North America and longer international sales lead times), which also resulted in a decrease in the fiscal 2012 outlook for Broadcast Communications and (ii) depressed indicators of value resulting from analyses undertaken in the third quarter of fiscal 2012 in connection with the review of our business portfolio, including the evaluation of strategic alternatives for Broadcast Communications that included a potential divestiture of Broadcast Communications and the principal markets currently available. Consequently, in connection with the preparation and review of our financial statements for the third quarter of fiscal 2012, we performed an interim review of Broadcast Communications' goodwill for impairment as of the end of the third quarter of fiscal 2012. See Note R — Subsequent Event in these Notes for details regarding the approval by our Board of Directors on April 27, 2012 of a plan to divest Broadcast Communications.

 

To test for potential impairment of goodwill related to Broadcast Communications, we prepared a preliminary estimate of the fair value of the reporting unit based on a combination of projected discounted cash flows and principal market-based multiples applied to sales and earnings. The current carrying value of the Broadcast Communications reporting unit exceeded its estimated fair value, and accordingly, we preliminarily allocated the estimated fair value to the assets and liabilities of the Broadcast Communications reporting unit to estimate the implied fair value of goodwill.

 

In conjunction with the above-described impairment review, we also conducted a review for impairment of other long-lived assets related to Broadcast Communications, including amortizable intangible assets, fixed assets and capitalized software, and impairment of these assets was considered prior to the conclusion of the goodwill impairment review. The estimated fair value of other long-lived assets related to Broadcast Communications was determined based, in part, on an analysis of projected cash flows.

 

As a result of these impairment reviews, we concluded that goodwill and other long-lived assets related to Broadcast Communications were impaired as of the end of the third quarter of fiscal 2012 and we recorded an estimated non-cash impairment charge of $424.0 million ($406.5 million after-tax). Due to the length of time necessary to measure the impairment of goodwill and other long-lived assets, our impairment analysis is not complete and is subject to change. We expect to complete our analysis prior to reporting our financial results for the fourth quarter of fiscal 2012 and will record any adjustments to our preliminary estimate at that time. The portion of the estimated impairment charge related to goodwill was $379.0 million and is not deductible for tax purposes. The tax effect of that non-deductibility was treated as a discrete item in the third quarter of fiscal 2012 for purposes of calculating our effective tax rate. We do not expect to make any current or future cash expenditures as a result of the impairment. The estimated impairment does not impact covenant compliance under our credit arrangements and we do not expect the impairment to impact our ongoing financial performance, although no assurance can be given.