Avnet 2011 Annual Report Download - page 48

Table of Contents
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of significant accounting policies
Principles of consolidation —
The accompanying consolidated financial statements include the accounts of the Company and all
of its majority-owned and controlled subsidiaries. All intercompany accounts and transactions have been eliminated.
Cash and cash equivalents —
The Company considers all highly liquid investments with an original maturity of three months or
less to be cash equivalents.
Inventories — Inventories, comprised principally of finished goods, are stated at cost (first-in, first-
out) or market, whichever is
lower.
Investments —
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. Non-
controlling interests in
the years presented are not material and, as a result, are included in the caption “accrued expenses and other”
in the accompanying
consolidated balance sheets. Investments in joint ventures and entities in which the Company exercises significant influence but not
control are accounted for using the equity method. 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 using the cost method. The fair values for investments not traded on a quoted exchange are estimated based upon the
historical performance of the ventures, 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 — 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
—
30 years; machinery, fixtures and equipment — 2-10 years; and leasehold improvements —
over the applicable remaining lease term
or useful life if shorter.
Long-lived assets — 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 by which 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 —
Goodwill represents the excess of the purchase price over the fair value of net assets acquired. Annual tests for
goodwill impairment are performed by applying a fair-value based test to Avnet’
s six 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 market valuation techniques which utilizes Level 3 criteria under fair value measurement standards. 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.
Foreign currency translation —
The assets and liabilities of foreign operations are translated into U.S. Dollars at the exchange
rates in effect at the balance sheet date, with the related translation adjustments reported as a separate component of shareholders’
equity and comprehensive income. Results of operations are translated using the average exchange rates prevailing throughout the
period. Transactions denominated in currencies other than the functional currency of the Avnet business unit that is party to the
transaction (primarily trade receivables and payables) are translated at exchange rates in effect at the balance sheet date or upon
settlement of the transaction. Gains and losses from such translation are recorded in the consolidated statements of operations as a
component of “other income (expense), net.”
In fiscal 2011, 2010 and 2009, gains or losses on foreign currency translation were not
material.
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