Avnet 2009 Annual Report Download - page 49

Table of Contents
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 multiple of earnings valuation techniques. 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.
During fiscal 2009, the Company recognized goodwill impairment charges of $1,379,734,000 pre-tax,
$1,345,590,000 after tax and $8.92 per share as a result of an interim test performed as of the end of December 27,
2008 as well as the annual impairment test in the fourth quarter of fiscal 2009. The non-
cash charge had no impact on
the Company’s compliance with debt covenants, its cash flows or available liquidity, but did have a material impact
on its consolidated financial statements. The Company’s annual impairment tests in fiscal 2008 and 2007 yielded no
impairments to the carrying value of the Company’s goodwill.
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,
net.” In fiscal 2009, 2008 and 2007, gains or losses on foreign currency translation were not material.
Income taxes — The Company follows the asset and liability method of accounting for income taxes. Deferred
income tax assets and liabilities are recognized for the estimated future tax impact of differences between the
financial statement carrying amounts of assets and liabilities and their respective tax bases. Deferred income tax
assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences
are expected to be recovered or settled. Based upon historical and projected levels of taxable income and analysis of
other key factors, the Company records a valuation allowance against its deferred tax assets, as deemed necessary, to
state such assets at their estimated net realizable value. The effect on deferred income tax assets and liabilities of a
change in tax rates is recognized in earnings in the period in which the new rate is enacted.
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.
No provision for U.S. income taxes has been made for approximately $1,536,051,000 of cumulative unremitted
earnings of foreign subsidiaries at June 27, 2009 because those earnings are expected to be permanently reinvested
outside the U.S. A hypothetical calculation of the deferred tax liability, assuming that earnings were remitted, is not
practicable.
Self-insurance — The Company is primarily self-insured for workers’ compensation, medical, and general,
product and automobile liability costs; however, the Company also has a stop-loss insurance policy in place to limit
the Company’s exposure to individual and aggregate claims made. Liabilities for these programs are estimated based
upon outstanding claims and claims estimated to have been incurred but not yet reported based upon historical loss
experience. These estimates are subject to variability due to changes in trends of losses for outstanding claims and
incurred but not recorded claims, including external factors such as future inflation rates, benefit level changes and
claim settlement patterns.
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