Avnet 2014 Annual Report Download - page 49

Table of Contents AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
an asset group's net book value exceeds its estimated fair value. For purposes of recognition and measurement of an impairment loss, long-
lived
assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely
independent of the cash flows of other assets and liabilities. The Company considers a long-
lived asset to be abandoned when it has ceased use
of such abandoned asset and if the Company has no intent to use or repurpose the asset in the future. 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 of acquired businesses over the estimated fair value assigned to the
individual assets acquired and liabilities assumed. The Company does not amortize goodwill, but instead tests goodwill for impairment at least
annually in the fourth quarter and, if necessary, records any impairment resulting from such impairment testing. Impairment testing is performed
at the reporting unit level, and the Company has identified six reporting units, defined as each of the three regions (Americas, EMEA, and Asia
Pacific) within the Company’
s two reportable segments. The Company will perform an impairment test between scheduled annual tests if facts
and circumstances indicate that it is more likely than not that the fair value of a reporting unit that has goodwill is less than its carrying value.
In performing goodwill impairment testing, the Company may first make a qualitative assessment of whether it is more-likely-than-
not
that a reporting unit’s fair value is less than its carrying value to determine whether it is necessary to perform the two-
step goodwill impairment
test. If the qualitative assessment indicates it is more-likely-than-not that a reporting unit’
s fair value is not greater than its carrying value, the
Company must perform a two-
step impairment test. The Company defines the fair value of a reporting unit as the price that would be received
to sell the reporting unit as a whole in an orderly transaction between market participants at the measurement date. To determine fair value of a
reporting unit, the Company primarily uses the income approach methodology of valuation, which includes the discounted cash flow method,
and the market approach methodology of valuation, which considers values of comparable businesses to estimate the fair values of the
Company’s reporting units.
Significant management judgment is required when estimating the fair value of the Company’
s reporting units from a market
participant perspective including the forecasting of future operating results, the discount rates and expected future growth rates used in the
discounted cash flow method of valuation, and in the selection of comparable businesses that are used in the market approach. If the estimated
fair value of the reporting unit exceeds the carrying value assigned to that reporting unit, goodwill is not impaired and no further analysis is
required.
If the carrying value assigned to a reporting unit exceeds its estimated fair value in the first step, then the Company is required to
perform the second step of the impairment test. In this step, the Company assigns the fair value of the reporting unit calculated in the first step to
all of the assets and liabilities of that reporting unit, as if a market participant just acquired the reporting unit in a business combination. The
excess of the fair value of the reporting unit determined in the first step of the impairment test over the total amount assigned to the assets and
liabilities in the second step of the impairment test represents the implied fair value of goodwill. If the carrying value of a reporting unit’
s
goodwill exceeds the implied fair value of goodwill, the Company would record an impairment loss equal to the difference. If there is no such
excess then all goodwill for a reporting unit is considered impaired.
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 subsidiaries that are party to the transactions (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
2014 , 2013 and 2012 , gains or losses on foreign currency translation were not material.
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 estimated levels of future taxable
income and analysis of other key factors, the Company may increase or decrease a valuation allowance against its deferred tax assets, as deemed
necessary, to state such assets at their estimated net realizable value.
46