Tech Data 2014 Annual Report Download - page 22

Table of Contents
Critical Accounting Policies and Estimates
The information included within MD&A is based upon our consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States ("GAAP"). The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures. On an ongoing
basis, we evaluate these estimates, including those related to bad debts, inventory, vendor incentives, goodwill and intangible assets, deferred
taxes, and contingencies. Our estimates and judgments are based on currently available information, historical results, and other assumptions we
believe are reasonable. Actual results could differ materially from these estimates. We believe the critical accounting policies discussed below
affect the more significant judgments and estimates used in the preparation of our consolidated financial statements.
Accounts Receivable
We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. In
estimating the required allowance, we take into consideration the overall quality and aging of the receivable portfolio, the existence of credit
insurance and specifically identified customer risks. Also influencing our estimates are the following: (1) the large number of customers and
their dispersion across wide geographic areas; (2) the fact that no single customer accounts for more than 10% of our net sales; (3) the value and
adequacy of collateral received from customers, if any; (4) our historical loss experience; and (5) the current economic environment. If actual
customer performance were to deteriorate to an extent not expected by us, additional allowances may be required which could have an adverse
effect on our consolidated financial results. Conversely, if actual customer performance were to improve to an extent not expected by us, a
reduction in allowances may be required which could have a favorable effect on our consolidated financial results.
Inventory
We value our inventory at the lower of its cost or market value, cost being determined on a moving average cost basis, which approximates the
first-in, first-out method. We write down our inventory for estimated obsolescence equal to the difference between the cost of inventory and the
estimated market value based upon an aging analysis of the inventory on hand, specifically known inventory-related risks (such as technological
obsolescence and the nature of vendor terms surrounding price protection and product returns), foreign currency fluctuations for foreign-sourced
products, and assumptions about future demand. Market conditions or changes in terms and conditions by our vendors that are less favorable
than those projected by management may require additional inventory write-downs, which could have an adverse effect on our consolidated
financial results.
Vendor Incentives
We receive incentives from vendors related to cooperative advertising allowances, infrastructure funding, volume rebates and other incentive
agreements. These incentives are generally under quarterly, semi-annual or annual agreements with the vendors; however, some of these
incentives are negotiated on an ad-hoc basis to support specific programs mutually developed with the vendor. Unrestricted volume rebates and
early payment discounts received from vendors are recorded when they are earned as a reduction of inventory and as a reduction of cost of
products sold as the related inventory is sold. Vendor incentives for specifically identified cooperative advertising programs and infrastructure
funding are recorded when earned as adjustments to product costs or selling, general and administrative expenses, depending on the nature of the
programs.
We also provide reserves for receivables on vendor programs for estimated losses resulting from vendors’ inability to pay or rejections by
vendors of claims. Should amounts recorded as outstanding receivables from vendors be deemed uncollectible, additional allowances may be
required which could have an adverse effect on our consolidated financial results. Conversely, if actual vendor performance were to improve to
an extent not expected by us, a reduction in allowances may be required which could have a favorable effect on our consolidated financial
results.
Goodwill, Intangible Assets and Other Long-Lived Assets
The carrying value of goodwill is reviewed at least annually for impairment and may also be reviewed more frequently if current events and
circumstances indicate a possible impairment. We also examine the carrying value of our intangible assets with finite lives, which includes
capitalized software and development costs, purchased intangibles, and other long-lived assets as current events and circumstances warrant
determining whether there are any impairment losses. Factors that may cause a goodwill, intangible asset or other long-lived asset impairment
include negative industry or economic trends and significant under-performance relative to historical or projected future operating results. Our
valuation methodology for goodwill includes, but is not limited to, a discounted cash flow model, which estimates the net present value of the
projected cash flows of our reporting units and a market approach, which evaluates comparative market multiples applied to our reporting units’
businesses to yield a second assumed value of each reporting unit. The Company performed its annual goodwill impairment test as of January
31, 2014, which indicated the estimated fair value of our European reporting unit exceeded its carrying value by a smaller margin than in
previous years. The carrying value of our
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