Avnet 2015 Annual Report Download - page 52

TableofContents
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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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 and related market
multiplesthatareusedinthemarketapproach.Iftheestimatedfairvalueofareportingunitexceedsthecarryingvalueassigned
tothatreportingunit,goodwillisnotimpairedandnofurtherimpairmenttesting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 goodwill 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will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 are remeasured at exchange rates in effect at the balance sheet date or upon settlement of the
transaction.Gainsandlossesfromsuchremeasurementsarerecordedintheconsolidatedstatementsofoperationsasacomponent
of “other income (expense), net.” In fiscal 2016, 2015 and 2014, gains or losses on foreign currency transactions 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withinincometaxexpense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.
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therelevant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 U.S., 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
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