Avnet 2011 Annual Report Download - page 30

Table of Contents
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.
Restructuring, Integration and Impairment Charges
The Company has been subject to the financial impact of integrating acquired businesses and charges related to business
reorganizations. In connection with such events, management is required to make estimates about the financial impact of such matters
that are inherently uncertain. Accrued liabilities and reserves are established to cover the cost of severance, facility consolidation and
closure, lease termination fees, inventory adjustments based upon acquisition-related termination of supplier agreements and/or the re-
evaluation of the acquired working capital assets (inventory and accounts receivable), and write-
down of other acquired assets
including goodwill. Actual amounts incurred could be different from those estimated.
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