Avnet 2011 Annual Report Download - page 49

Table of Contents
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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. 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. Based upon
historical and projected levels of taxable income and analysis of other key factors, the Company may record a valuation allowance
against its deferred tax assets, as deemed necessary, to state such assets at their estimated net realizable value.
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 $2.0 billion of cumulative unremitted earnings of foreign
subsidiaries at July 2, 2011 because those earnings are expected to be permanently reinvested outside the U.S. A hypothetical
calculation of the deferred tax liability, assuming those 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.
Revenue recognition —
Revenue from product sales is recognized when persuasive evidence of an arrangement exists, delivery
has occurred or services have been rendered, the sales price is fixed or determinable and collectibility is reasonably assured.
Generally, these criteria are met upon shipment to customers. Most of the Company’
s product sales come from product Avnet
purchases from a supplier and holds in inventory. A portion of the Company’
s sales are shipments of product directly from its
suppliers to its customers. In such circumstances, Avnet negotiates the price with the customer, pays the supplier directly for the
product shipped and bears credit risk of collecting payment from its customers. Furthermore, in such drop-
shipment arrangements,
Avnet bears responsibility for accepting returns of product from the customer even if Avnet, in turn, has a right to return the product to
the original supplier if the product is defective. Under these terms, the Company serves as the principal with the customer and,
therefore, recognizes the sale and cost of sale of the product upon receiving notification from the supplier that the product has shipped.
In addition, the Company has more limited contractual relationships with certain of its customers and suppliers whereby Avnet
assumes an agency relationship in the transaction. In such arrangements, the Company recognizes the fee associated with serving as an
agent in sales with no associated cost of sales.
Revenues from maintenance contracts are recognized ratably over the life of the contracts, generally ranging from one to three
years.
Revenues are recorded net of discounts, rebates and estimated returns. Provisions are made for discounts and rebates, which are
primarily volume-
based, and are based on historical trends and anticipated customer buying patterns. Provisions for returns are
estimated based on historical sales returns, credit memo analysis and other known factors.
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