Avnet 2013 Annual Report Download - page 33

Table of Contents
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.
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 accordance with the Company's accounting policy, accrued interest and penalties, if any, related to unrecognized tax benefits are
recorded as a component of income tax expense.
In determining the Company's effective tax rate, management considers current tax regulations in the numerous jurisdictions in which it
operates, and exercises 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.
Additionally, in assessing goodwill for impairment, the Company is required to make significant assumptions about the future cash flows
and overall performance of its reporting units. The Company is also required to make judgments regarding the evaluation of changes in events or
circumstances that would more likely than not reduce the fair value of any of its reporting units below its carrying value, the results of which
would determine whether an interim impairment test must be performed. Should these assumptions or judgments change in the future based
upon market conditions or should the structure of the Company’
s reporting units change based upon changes in business strategy, the Company
may be required to perform an interim impairment test which may result in a goodwill impairment charge.
During fiscal 2013 , 2012 and 2011
, the Company performed its annual goodwill impairment test and determined there was no goodwill
impairment in any of its reporting units. The Company does not believe there were any reporting units that were at risk of failing "step 1" of the
goodwill impairment test. However, in fiscal 2013 there was one reporting unit for which the estimated fair value was not substantially in excess
of the carrying value of the reporting unit. The percentage by which the estimated fair value exceeded carrying value was approximately 23%
for
TS Asia. As of June 29, 2013 , TS Asia had approximately $54 million of allocated goodwill.
In order to estimate the fair value of its reporting units, the Company uses a combination of an income approach, specifically a discounted
cash flow methodology, and a market approach. The discounted cash flow methodology includes assumptions for, among others, forecasted
revenues, gross profit margins, operating profit margins, working capital cash flow, perpetual growth rates and long-
term discount rates, all of
which require significant judgments and estimates by management which are inherently uncertain. These assumptions, judgments and estimates
may change in the future based upon market conditions or other events and could result in a goodwill impairment charge.
Contingencies and Litigation
From time to time, the Company may become a party to, or otherwise involved in, various lawsuits, claims, investigations and other legal
proceedings in the ordinary course of conducting its business. While litigation is subject to inherent uncertainties, management does not
anticipate that any current matters will have a material adverse impact on the Company’s financial condition, liquidity or results of operations.
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