Avnet 2005 Annual Report Download - page 53

AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of significant accounting policies
Principles of consolidation Ì The accompanying consolidated financial statements include the accounts
of the Company and all of its subsidiaries. All intercompany accounts and transactions have been eliminated.
Cash and cash equivalents Ì The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
Inventories Ì Inventories, comprised principally of finished goods, are stated at cost (first-in, first-out)
or market, whichever is lower.
Investments Ì Investments in joint ventures and entities in which the Company has an ownership
interest greater than 50% and exercises control over the venture are consolidated in the accompanying
consolidated financial statements. Minority interests in the years presented, which amounts are not material,
are included in the caption ""accrued expenses and other'' in the accompanying consolidated balance sheets.
The Company invests from time to time in ventures in which the Company's ownership interest is less than
20% and over which the Company does not exercise significant influence. Such investments are accounted for
under the cost method. The fair values for investments not traded on a quoted exchange are estimated based
upon the performance of the ventures historically, the ventures' forecasted financial performance and
management's evaluation of the ventures' viability and business models. To the extent the book value of an
investment exceeds its assessed fair value, the Company will record an appropriate impairment charge. Thus,
the carrying value of the Company's investments approximates fair value.
Depreciation and amortization Ì Depreciation and amortization is generally provided for by the straight-
line method over the estimated useful lives of the assets. The estimated useful lives for depreciation and
amortization are typically as follows: buildings Ì 30 years; machinery, fixtures and equipment Ì 2-10 years;
and leasehold improvements Ì over the applicable remaining lease term or useful life if shorter.
Long-lived assets Ì Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be recoverable. An impairment is
recognized when the estimated undiscounted cash flows expected to result from the use of the asset and its
eventual disposition is less than its carrying amount. An impairment is measured as the amount an asset's net
book value exceeds its estimated fair value. 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 the related
depreciation and amortization period if and when appropriate.
Goodwill Ì Goodwill represents the excess of the purchase price over the fair value of net assets
acquired. The Company has no other material identifiable intangible assets besides goodwill. In accordance
with the Financial Accounting Standards Board (""FASB'') Statement of Financial Accounting Standards
No. 142 (""SFAS 142''), Goodwill and Other Intangible Assets, the Company does not amortize goodwill.
Instead, periodic tests for goodwill impairment are performed by applying a fair-value based test to Avnet's
reporting units, defined as each of the three regional businesses, which are the Americas, EMEA (Europe,
Middle East and Africa), and Asia, within each of the Company's operating groups. The Company conducts
its periodic test for goodwill impairment annually, on the first day of the fiscal fourth quarter. A two-step
process is used to evaluate goodwill for 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. The second step, which is performed only if there is an indication of impairment,
determines the amount of the impairment by comparing the implied fair value of the reporting unit's goodwill
with its carrying value. To estimate fair value of each reporting unit, the Company uses a combination of
present value and multiple of earnings valuation techniques. The estimated fair values could change in the
future due to changes in market and business conditions that could affect the assumptions and estimates used
in these valuation techniques. Furthermore, in a cyclical business, the timing of a valuation may be an
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