Avnet 2009 Annual Report Download - page 30

Table of Contents
require significant judgments and estimates. Management believes the Company’s most critical accounting policies
relate to:
Valuation of Receivables
The Company maintains an allowance for doubtful accounts for estimated losses resulting from customer
defaults. Bad debt reserves are recorded based upon historic default averages as well as the Company’s regular
assessment of the financial condition of its customers. Therefore, if collection experience or the financial condition 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.
In determining the Company’s effective tax rate, management considers current tax regulations in the numerous
jurisdictions in which it operates, and requires management
’
s judgment for interpretation and application. Changes to
such tax regulations or disagreements with the Company’s interpretation or application by tax authorities in any of
the Company’s major jurisdictions may have a significant impact on the Company’s provision for income taxes.
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