Avnet 2014 Annual Report Download - page 50

Table of Contents AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company establishes contingent liabilities for potentially unfavorable outcomes of positions taken on certain tax matters. These
liabilities 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 estimated and actual outcomes of these matters that may result in future changes in estimates
to such contingent liabilities. To the extent such changes in estimates are required, the Company’
s effective tax rate may potentially fluctuate as
a result. In accordance with the Company's accounting policies, accrued interest and penalties related to unrecognized tax benefits are recorded
as a component of income tax expense.
Self-insurance — In the United States, the Company is primarily self-insured for workers’
compensation, medical, and general, product
and automobile liability costs; however, the Company also has stop-loss insurance policies 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 be
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 the sale of products or services 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 collectability is reasonably assured. Generally,
these criteria are met upon either shipment or delivery to customers, depending upon the sales terms. Most of the Company’
s product sales come
from products Avnet purchases from a supplier and holds in inventory. A portion of the Company’
s sales are products shipped directly from its
suppliers to its customers ("drop-ship"). In such drop-
ship arrangements, Avnet negotiates the price with the customer, pays the supplier directly
for the products shipped and bears credit risk of collecting payment from its customers. Furthermore, in such drop-
shipment arrangements, the
Company bears responsibility for accepting returns of products from the customer even if the Company, in turn, has a right to return the products
to the original supplier if the products are defective. Under these sales terms, the Company serves as the principal with the customer and,
therefore, recognizes the gross sale and cost of sale of the product upon shipment by the supplier.
In addition, the Company has certain contractual relationships with a limited number of its customers and suppliers whereby Avnet
assumes an agency relationship in the transaction. In such arrangements, the Company recognizes the net 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
timing or volume specific, and are estimated based on historical trends and anticipated customer buying patterns. Provisions for returns and other
sales adjustments are estimated based on historical sales returns experience, credit memo experience and other known factors.
Vendor allowances and consideration —
Consideration received from suppliers for price protection, product rebates,
marketing/promotional activities, or any other programs are recorded when earned under the terms and conditions of such supplier programs as
adjustments to product costs or selling, general and administrative expenses depending upon the nature and contractual requirements related to
the consideration received. Some of these supplier programs may extend over one or more reporting periods and may require management to
make estimates.
Comprehensive income — Comprehensive income represents net income for the year adjusted for certain changes in shareholders’
equity.
Accumulated comprehensive income items impacting comprehensive income typically include currency translation and the impact of the
Company’s pension liability adjustments, net of tax (see Note 4).
Stock-based compensation —The Company measures stock-
based payments at fair value and generally recognizes the associated operating
expense in the consolidated statement of operations over the requisite service period (see Note 12). A stock-
based payment is considered vested
for accounting expense attribution purposes when the employee's retention of the award is no longer contingent on providing continued service.
Accordingly, the Company recognizes all stock-
based compensation expense for an award on the grant date for awards granted to retirement
eligible employees or over the period from the grant date to the date retirement eligibility is achieved, if less than the stated requisite service
period. The expense attribution approach for retirement eligible employees does not affect the overall amount of compensation expense
recognized, but instead accelerates the recognition of expense.
Restructuring and Exit Activities — The Company accounts for employee termination benefits that represent a one-
time benefit in
accordance with ASC 420, Exit or Disposal Cost Obligations. If applicable, the Company records such costs into operating
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