Avnet 2011 Annual Report Download - page 31

Table of Contents
Additionally, in assessing the Company’
s goodwill for impairment the Company is required to make significant assumptions
about the future cash flows and overall performance of its 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 its carrying value, the results of which would determine whether an interim 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, the Company may be required to perform an interim impairment test which may
result in a goodwill impairment charge.
During fiscal 2011 and 2010, the Company performed its annual goodwill impairment test and determined there was no goodwill
impairment and there are no reporting units with material goodwill that are at risk of failing “step 1”
of the goodwill impairment test.
During fiscal 2009, the Company performed an interim goodwill impairment test and recognized goodwill and intangible asset
impairments. See Impairment Charges in this MD&A for further discussion of the Company’
s evaluation of goodwill impairment in
fiscal 2009.
Contingencies and Litigation
From time to time, the Company may become a party to, or otherwise involved in, pending and threatened litigation, tax,
environmental and other matters in the ordinary course of conducting its business. Management does not anticipate that any contingent
matters will have a material adverse impact on the Company’s financial condition, liquidity or results of operations.
Revenue Recognition
The Company does not consider revenue recognition to be a critical accounting policy due to the nature of its business because
revenues are generally recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been
rendered, the sales price is fixed or determinable and collectability is reasonably assured. Generally, these criteria are met upon the
actual shipment of product to the customer. Accordingly, other than for estimates related to possible returns of products from
customers, discounts or rebates, the recording of revenue does not require significant judgments or estimates. Provisions for returns
are estimated based on historical sales returns, credit memo analysis and other known factors. Provisions are made for discounts and
rebates, which are primarily volume-
based, and are generally based on historical trends and anticipated customer buying patterns.
Finally, revenues from maintenance contracts, which are deferred and recognized in income over the life of the agreement, are not
material to the consolidated results of operations of the Company.
Recently Issued Accounting Pronouncements
See Note 1 in the Notes to Consolidated Financial Statements
contained in Item 15 of this Report for the discussion of recently
issued accounting pronouncements.
Liquidity and Capital Resources
Cash Flows
Cash Flows from Operating Activities
The Company generated $278.1 million of cash from operating activities in fiscal 2011 as compared with cash usage of
$30.4 million in fiscal 2010. These results are comprised of: (1) cash flow generated from net income excluding non-
cash and other
reconciling items, which includes the add-back of depreciation and amortization, deferred income taxes, stock-
based compensation
and other non-
cash items (primarily the provision for doubtful accounts and periodic pension costs) and (2) cash flow used for
working capital, excluding cash and cash equivalents. Cash used for working capital in fiscal 2011 consisted of growth in accounts
receivable and inventory of $421.5 million and $321.9 million, respectively, partially offset by an increase in payables of
$165.2 million. For EM, inventory and receivables grew year over year due to the strong growth in sales. For TS, growth in
receivables was partially offset by an increase in accounts payables. Net days outstanding, in particular, receivable days, are above
pre-recession levels as there has not been any significant change in terms provided to customers.
During fiscal 2010, the Company used $30.4 million of cash from operating activities as compared with cash generated in fiscal
2009 of $1.1 billion. Cash used for working capital during fiscal 2010 consisted of growth in accounts receivable and inventory of
$1.07 billion and $459.9 million, respectively, partially offset by an increase in accounts payable of $963.3 million. For fiscal 2010,
sales increased 18.1%; however, the Company used only $30.4 million of cash from operating activities to fund that growth as a result
of the significant improvement in working capital velocity which increased to a record 7.8 times. Cash generated from working capital
during fiscal 2009 was the result of a $709.9 million reduction in receivables, a $483.5 million reduction in inventory; both of which
were partially offset by a $375.5 million reduction in accounts payable.
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