Avnet 2012 Annual Report Download - page 46

Table of Contents
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of significant accounting policies
Principles of consolidation —
The accompanying consolidated financial statements include the accounts of the Company and all of its
majority-owned and controlled subsidiaries. All intercompany accounts and transactions have been eliminated.
Cash and cash equivalents —
The Company considers all highly liquid investments with an original maturity of three months or less to be
cash equivalents.
Inventories — Inventories, comprised principally of finished goods, are stated at cost (first-in, first-out) or market, whichever is lower.
Investments — Investments in joint ventures and entities in which the Company has an ownership interest greater than 50%
and exercises
control over the venture are consolidated in the accompanying consolidated financial statements. Non-
controlling interests in the years presented
are not material and, as a result, are included in the caption “accrued expenses and other”
in the accompanying consolidated balance sheets.
Investments in joint ventures and entities in which the Company exercises significant influence but not control are accounted for using the equity
method. The Company invests from time to time in ventures in which the Company’s ownership interest is less than 20%
and over which the
Company does not exercise significant influence. Such investments are accounted for using the cost method. The fair values for investments not
traded on a quoted exchange are estimated based upon the historical performance of the ventures, the ventures’
forecasted financial performance
and management’s evaluation of the ventures’
viability and business models. To the extent the book value of an investment exceeds its assessed
fair value, the Company will record an appropriate impairment charge. Thus, the carrying value of the Company’
s investments approximates fair
value.
Depreciation and amortization — Depreciation and amortization is generally provided for by the straight-
line method over the estimated
useful lives of the assets. The estimated useful lives for depreciation and amortization are typically as follows: buildings — 30
years;
machinery, fixtures and equipment — 2 - 10 years; and leasehold improvements — over the applicable
remaining lease term or useful life if
shorter .
Long-lived assets — Long-
lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount of the assets may not be recoverable. An impairment is recognized when the estimated undiscounted cash flows expected to
result from the use of the asset and its eventual disposition is less than its carrying amount. An impairment is measured as the amount by which
an asset’
s net book value exceeds its estimated fair value. The Company continually evaluates the carrying value and the remaining economic
useful life of all long-
lived assets and will adjust the carrying value and the related depreciation and amortization period if and when appropriate.
Goodwill —
Goodwill represents the excess of the purchase price over the fair value of net assets acquired. Annual tests for goodwill
impairment are performed by applying a fair-value based test to Avnet’s six reporting units, defined as each of the three
regional businesses,
which are the Americas, EMEA (Europe, Middle East and Africa), and Asia, within each of the Company’
s operating groups. The Company
conducts its periodic test for goodwill impairment annually , on the first day of the fiscal fourth quarter. A two-
step process is used to evaluate
goodwill for impairment. The first step is to determine if there is an indication of impairment by comparing the estimated fair value of each
reporting unit to its carrying value including existing goodwill. Goodwill is considered impaired if the 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 market valuation techniques that utilizes Level 3 criteria under the fair value
measurement standards. 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.
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 (expense), net.”
In fiscal
2012 , 2011 and 2010 , gains or losses on foreign currency translation were not material.
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