Avnet 2015 Annual Report Download - page 35

TableofContents
The Company regularly evaluates inventories for obsolescence, current market prices and other factors that may render
inventoriesless marketable. Write-downs are recorded sothatinventoriesreflecttheapproximate net realizable value andtake
intoaccounttheCompany’scontractualprovisionswithitssuppliers,whichmayprovidecertainprotectionstotheCompanyfor
productobsolescenceandpriceerosionintheformofrightsofreturn,stockrotationrightsandpriceprotections.Becauseofthe
largenumberofproductsandsuppliersandthecomplexityofmanagingtheprocessaroundpriceprotectionsandstockrotations,
estimates are made regarding the realizable value of inventories. Additionally, assumptions about future demand, market
conditions and decisions to discontinue certain product lines impact the evaluation of whether to write-down inventories. If
assumptions about future demand change or actual market conditions are less favorable than those assumed by management,
managementwouldevaluatewhetheradditionalwrite-downsofinventoriesarerequired.Inanycase,actualnetrealizablevalues
couldbedifferentfromthosecurrentlyestimated.
Accounting for Income Taxes
Management’sjudgment isrequiredindeterminingincometaxexpense, measuringdeferredtaxassets andliabilitiesand
the valuation allowances recorded against net deferred tax assets and unrecognized tax benefits. The recoverability of the
Company’s net deferred tax assets is dependent upon its ability to generate sufficient future taxable income in certain
jurisdictions. In addition, the Company 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 theneedforvaluation allowances.
ShouldtheCompanydeterminethatitisnotabletorealizeallorpartofitsdeferredtaxassetsinthefuture,additionalvaluation
allowancesmayberecorded against thedeferred tax assets with a corresponding increase to income tax expense 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anassociated valuation allowanceestablished,theCompanymayrelease avaluationallowancewithacorresponding
benefittoincometaxexpenseintheperiodsuchdeterminationismade.
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anticipatedandactualoutcomesofthesemattersthat
may result in changes in estimates to such liabilities. To the extent such changes in estimates are necessary, the Company’s
effectivetaxratemaypotentiallyfluctuateasaresult.InaccordancewiththeCompany’saccountingpolicy,accruedinterestand
penaltiesrelatedtounrecognizedtaxbenefitsarerecordedasacomponentofincometaxexpense.
In determining the Company’s income tax expense, 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incometaxexpense.
SeeNote1andNote9intheNotestoConsolidatedFinancialStatementscontainedinItem15ofthisAnnualReporton
Form10-Kforfurtherdiscussiononvaluationallowancesandcontingentliabilities.
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