Avnet 2012 Annual Report Download - page 47

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 $2.5 billion
of cumulative unremitted earnings of foreign
subsidiaries at June 30, 2012
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.
Comprehensive income (loss) —
Comprehensive income (loss) represents net income (loss) for the year adjusted for changes in
shareholders’ equity from non-
shareholder sources. Accumulated comprehensive income items typically include currency translation and the
impact of the Company’s pension liability adjustment, net of tax (see Note 4).
Stock-based compensation —The Company measures share-
based payments, including grants of employee stock options, at fair value and
recognizes the associated expense in the consolidated statement of operations over the requisite service period (see Note 12).
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