Avnet 2000 Annual Report Download - page 25

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AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of significant accounting policies:
Principles of consolidation - The accompanying financial statements include the accounts of the Company and all of its subsidiaries. All intercompany
accounts and transactions have been eliminated. Minority interests at the end of 2000 and 1999, which amounts are not material, are included in the cap-
tion “Accrued expenses and other”.
Inventories - Stated at cost (first-in, first-out) or market, whichever is lower.
Depreciation and amortization - Depreciation and amortization is generally provided for by the straight-line method over the estimated useful lives of the
assets.
Goodwill - Goodwill represents the excess of the purchase price over the fair value of net assets acquired. Except for an immaterial amount of goodwill appli-
cable to purchases made before October 31, 1970, goodwill is being amortized on a straight-line basis over 40 years.
Long-lived assets - Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the
assets in question may not be recoverable. 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.
Foreign currency translation – The assets and liabilities of foreign operations are translated into U.S. dollars at the exchange rate in effect at the balance
sheet date with the related translation gains and losses reported as a separate component of shareholders’ equity and comprehensive income. Results of
operations are translated using the average exchange rate prevailing throughout the period.
Income taxes - No provision for U.S. income taxes has been made for $138,216,000 of cumulative unremitted earnings of foreign subsidiaries at June 30,
2000 because those earnings are expected to be permanently reinvested outside the U.S. If such earnings were remitted to the U.S., any net U.S. income
taxes would not have a material impact on the results of operations of the Company.
Stock split – On August 31, 2000, the Board of Directors declared a two-for-one stock split to be effected in the form of a stock dividend. The additional
common stock will be distributed on September 28, 2000 to shareholders of record on September 18, 2000. All references in this report to the number of
shares, per share amounts, and market prices of the Company’s common stock have been restated to reflect the stock split and the resulting increased num-
ber of shares outstanding.
Earnings per share - Basic earnings per share is computed based on the weighted average number of common shares outstanding and excludes any poten-
tial dilution. Diluted earnings per share reflects potential dilution from the exercise or conversion of securities into common stock. The number of dilutive
securities for 2000, 1999 and 1998 amounting to 911,000 shares, 644,000 shares and 896,000 shares, respectively, relate to stock options and restricted
stock awards. All earnings per share have been retroactively restated to reflect the two-for-one stock split approved by the Board of Directors on August 31,
2000.
Comprehensive income – Effective as of the beginning of fiscal 1999, the Company adopted Statement of Financial Accounting Standards No. 130 (“SFAS
130”), “Reporting Comprehensive Income”. SFAS 130 establishes reporting standards designed to measure all of the changes in shareholders’ equity that
result from transactions and other economic events of the period excluding transactions with owners (“Comprehensive Income”). Comprehensive Income for
the Company consists of net income, equity foreign currency translation adjustments and, in fiscal 2000, a net unrealized gain on investments in marketable
securities.
Cash equivalents - The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. Summary of significant accounting policies (continued):
Revenue Recognition – Revenue from product sales is recognized upon shipment to customers.
Concentration of credit risk - Financial instruments which potentially subject the Company to a concentration of credit risk principally consist of cash and
cash equivalents and trade accounts receivable. The Company invests its excess cash primarily in overnight Eurodollar time deposits with quality financial
institutions. The Company sells electronic components and computer products primarily to original equipment manufacturers including military contractors
and the military, throughout North and South America, Europe and the Asia/ Pacific region. To reduce credit risk, management performs ongoing credit eval-
uations of its customers’ financial condition. The Company maintains reserves for potential credit losses, but has not experienced any material losses relat-
ed to individual customers or groups of customers in any particular industry or geographic area.
Derivative financial instruments - Many of the Company’s operations, primarily its international subsidiaries, occasionally purchase and sell product in cur-
rencies other than their functional currencies. This subjects the Company to the risks associated with the fluctuations of foreign currency exchange rates.
The Company reduces this risk by utilizing natural hedging (offsetting receivables and payables) as well as by creating offsetting positions through the use
of derivative financial instruments, primarily forward foreign exchange contracts with maturities of less than sixty days. The market risk related to the for-
eign exchange contracts is offset by the changes in valuation of the underlying items being hedged. The amount of risk and the use of derivative financial
instruments described above is not material to the Company’s financial position or results of operations. The Company does not hedge its investment in its
foreign operations nor its floating interest rate exposures.
Fiscal year – The Company operates on a “52/ 53 week” fiscal year which ends on the Friday closest to June 30th. Fiscal year 1999 contained 53 weeks as
compared with 52 weeks in fiscal 2000 and 1998. Unless otherwise noted, all references to the “year 2000” or any other “year” shall mean the Company’s
fiscal year.
Management estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect certain reported amounts of assets and liabilities, disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those
estimates.
New accounting standards – Effective July 1, 2000, the Company adopted the Financial Accounting Standards Board’s Statement of Financial Accounting
Standards No. 133 (“SFAS 133”), “Accounting for Derivative Instruments and Hedging Activities.” SFAS 133 establishes accounting and reporting standards
requiring that every derivative instrument, including certain derivative instruments embedded in other contracts, be recorded in the balance sheet as either
an asset or liability measured at its fair value. SFAS 133 requires that changes in the derivative’s fair value be recognized currently in earnings unless spe-
cific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative’s gains and losses to offset related results on the hedged
item in the income statement to the extent effective, and requires that the Company must formally document, designate and assess the effectiveness of
transactions that receive hedge accounting. The adoption of SFAS 133 did not have a material effect on the Company’s financial statements.
In December 1999, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 101 (“SAB 101”), “Revenue Recognition,”which
provides guidance on the recognition, presentation and disclosure of revenue in financial statements filed with the SEC. In June 2000, the SEC issued Staff
Accounting Bulletin 101B (“SAB 101B”), which extends the effective date of SAB 101 to the Company’s fourth quarter of fiscal 2001. Although the Company
has not fully assessed the implications of SAB 101, management does not believe the adoption of the statement will have a significant impact on the
Company’s consolidated financial position, results of operations or cash flows.
2. Acquisitions and dispositions:
Since June 28, 1997, the Company has completed sixteen acquisitions - three in North America, six in Europe, five in the Asia/ Pacific region, one in the
Middle East and one in South America. Seven of the acquisitions were completed in 2000, four were completed during 1999 and five were completed in 1998.
All acquisitions have been accounted for as purchases.