Avnet 2008 Annual Report Download - page 32

Table of Contents
of specific customers were to deteriorate, management would evaluate whether additional allowances and
corresponding charges to the consolidated statement of operations are required.
Valuation of Inventories
Inventories are recorded at the lower of cost (first in — first out) or estimated market value. The Company’s
inventories include high-technology components, embedded systems and computing technologies sold into rapidly
changing, cyclical and competitive markets wherein such inventories may be subject to early technological
obsolescence.
The Company regularly evaluates inventories for excess, obsolescence or other factors that may render
inventories less marketable. Write-
downs are recorded so that inventories reflect the approximate net realizable value
and take into account the Company’
s contractual provisions with its suppliers, which may provide certain protections
to the Company for product obsolescence and price erosion in the form of rights of return and price protection.
Because of the large number of transactions and the complexity of managing the process around price protections
and stock rotations, estimates are made regarding adjustments to the carrying amount of inventories. Additionally,
assumptions about future demand, market conditions and decisions to discontinue certain product lines can impact
the decision to write down inventories. If assumptions about future demand change or actual market conditions are
less favorable than those projected by management, management would evaluate whether additional write-downs of
inventories are required. In any case, actual values could be different from those estimated.
Accounting for Income Taxes
Management judgment is required in determining the provision for income taxes, deferred tax assets and
liabilities and the valuation allowance recorded against net deferred tax assets. The carrying value of the Company’s
net operating loss carry-forwards is dependent upon its ability to generate sufficient future taxable income in certain
tax jurisdictions. In addition, the Company considers historic levels of income, expectations and risk associated with
estimates of future taxable income and ongoing prudent and feasible tax planning strategies in assessing a tax
valuation allowance. Should the Company determine that it is not able to realize all or part of its deferred tax assets
in the future, an additional valuation allowance may be recorded against the deferred tax assets with a corresponding
charge to income in the period such determination is made.
The Company establishes reserves for potentially unfavorable outcomes of positions taken on certain tax
matters. These reserves are based on management’s assessment of whether a tax benefit is more likely than not to be
sustained upon examination by tax authorities. There may be differences between the anticipated and actual
outcomes of these matters that may result in reversals of reserves or additional tax liabilities in excess of the reserved
amounts. To the extent such adjustments are warranted, the Company’
s effective tax rate may potentially fluctuate as
a result.
Restructuring, Integration and Impairment Charges
The Company has been subject to the financial impact of integrating acquired businesses and charges related to
business reorganizations. In connection with such events, management is required to make estimates about the
financial impact of such matters that are inherently uncertain. Accrued liabilities and reserves are established to cover
the cost of severance, facility consolidation and closure, lease termination fees, inventory adjustments based upon
acquisition-related termination of supplier agreements and/or the re-evaluation of the acquired working capital assets
(inventory and accounts receivable), and write-down of other acquired assets including goodwill. Actual amounts
incurred could be different from those estimated.
Additionally, in assessing the Company’s goodwill for impairment 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 is required to make significant assumptions about the future cash flows and
overall performance of its reporting units. Should these assumptions or the structure of the reporting units change in
the future based upon market conditions or changes in business strategy, the Company may be required to record
impairment charges to goodwill.
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