Arrow Electronics 2011 Annual Report Download - page 48

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46
ARROW ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
1. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the company and its majority-owned subsidiaries. All significant
intercompany transactions are eliminated.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires
the company to make significant estimates and assumptions that affect the amounts reported in the consolidated financial statements
and accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments, which are readily convertible into cash, with original maturities of three
months or less.
Inventories
Inventories are stated at the lower of cost or market. Cost approximates the first-in, first-out method. Substantially all inventories
represent finished goods held for sale.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is computed on the straight-line method over the estimated useful
lives of the assets. The estimated useful lives for depreciation of buildings is generally 20 to 30 years, and the estimated useful
lives of machinery and equipment is generally three to ten years. Leasehold improvements are amortized over the shorter of the
term of the related lease or the life of the improvement. Long-lived assets are reviewed for impairment whenever changes in
circumstances or events may indicate that the carrying amounts are not recoverable. If the fair value is less than the carrying
amount of the asset, a loss is recognized for the difference.
Software Development Costs
The company capitalizes certain internal and external costs incurred to acquire or create internal-use software. Capitalized software
costs are amortized on a straight-line basis over the estimated useful life of the software, which is generally three to seven years.
Identifiable Intangible Assets
Amortization of definite-lived intangible assets is computed on the straight-line method over the estimated useful lives of the
assets, while indefinite-lived intangible assets are not amortized. Identifiable intangible assets are reviewed for impairment
whenever changes in circumstances or events may indicate that the carrying amounts are not recoverable. The company also tests
indefinite-lived intangible assets, consisting of acquired trade names, for impairment at least annually as of the first day of the
fourth quarter. If the fair value is less than the carrying amount of the asset, a loss is recognized for the difference.
Investments
Investments are accounted for using the equity method if the investment provides the company the ability to exercise significant
influence, but not control, over an investee. Significant influence is generally deemed to exist if the company has an ownership
interest in the voting stock of the investee between 20% and 50%, although other factors, such as representation on the investee's
Board of Directors, are considered in determining whether the equity method is appropriate. The company records its investments
in equity method investees meeting these characteristics as "Investments in affiliated companies" in the company's consolidated
balance sheets.