Avnet 2012 Annual Report Download - page 28

Table of Contents
* EPS does not foot due to rounding
Critical Accounting Policies
The Company’
s consolidated financial statements have been prepared in accordance with U.S. GAAP. The preparation of these
consolidated financial statements requires the Company to make estimates and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses during the reporting period. These estimates and assumptions are based upon the Company’
s continuous evaluation of
historical results and anticipated future events. Actual results may differ from these estimates under different assumptions or conditions.
The Securities and Exchange Commission defines critical accounting policies as those that are, in management’
s view, most important to
the portrayal of the Company’
s financial condition and results of operations and that 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 change, management would evaluate whether additional
adjustments 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 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 currently estimated.
Accounting for Income Taxes
Management's 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. Similarly, should the Company determine that it is able to realize all or part of its deferred tax assets that have been
reserved for, the Company may release a valuation allowance with a corresponding benefit to income in the period such determination is made.
27
Year Ended July 3, 2010
Operating
Income (Loss)
Pre-tax
Income (Loss)
Net
Income (Loss)
Diluted
EPS *
(Thousands, except per share data)
Restructuring, integration and other charges
$
(25,419
)
$
(25,419
)
$
(18,789
)
$
(0.12
)
Gain on sale of assets —
8,751
5,370
0.03
Net increase in tax reserves —
— (
842
)
(0.01
)
Total
$
(25,419
)
$
(16,668
)
$
(14,261
)
$
(0.09
)