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AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
maintains reserves for potential credit losses, but has not experienced any material losses related to individual
customers or groups of customers in any particular industry or geographic area.
Fair value of Ñnancial instruments Ì The carrying amounts of the Company's Ñnancial instruments,
including cash and cash equivalents, receivables and accounts payable approximate their fair values at
June 28, 2002 due to the short-term nature of these instruments. See Note 7 for further discussion of the fair
value of the Company's Ñxed rate long-term debt instruments and see Investments for further discussion of the
fair value of the Company's investments in unconsolidated entities.
Accounts receivable securitization Ì The Company has an accounts receivable securitization program
whereby the Company sells receivables in securitization transactions and retains a subordinated interest and
servicing rights to those receivables. The Company accounts for the program under the FASB's Statement of
Financial Accounting Standards No. 140 (""SFAS 140''), ""Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities.'' The gain or loss on sales of receivables is determined at
the date of transfer based upon the relative fair value of the assets sold and the interests retained. The
Company estimates fair value based on the present value of future expected cash Öows using management's
best estimates of the key assumptions, including collection period and discount rates. See Note 3 for further
discussion.
Derivative Ñnancial instruments Ì EÅective July 1, 2000, the Company adopted the FASB's Statement
of Financial Accounting Standards No. 133 (""SFAS 133''), ""Accounting for Derivative Instruments and
Hedging Activities,'' as amended by Statement of Financial Accounting Standards No. 138, ""Accounting for
Certain Derivative Instruments and Hedging Activities.'' SFAS 133, as amended, 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, as amended, requires that changes in the derivative's fair value be recognized currently in
earnings unless speciÑc hedge accounting criteria are met. Special accounting for qualifying hedges allows a
derivative's gains and losses to oÅset related results on the hedged item in the statement of operations to the
extent eÅective, thus resulting in no net eÅect in the statement of operations. To achieve such accounting
treatment, the Company must formally document, designate and assess the eÅectiveness of transactions that
receive hedge accounting. The adoption of SFAS 133, as amended, did not have a material eÅect on the
Company's consolidated Ñnancial statements.
Many of the Company's subsidiaries, on occasion, purchase and sell products in currencies other than
their functional currencies. This subjects the Company to the risks associated with the Öuctuations of foreign
currency exchange rates. The Company reduces this risk by utilizing natural hedging (oÅsetting receivables
and payables) as well as by creating oÅsetting positions through the use of derivative Ñnancial instruments,
primarily forward foreign exchange contracts with maturities of less than sixty days. The Company adjusts all
foreign denominated balances and any outstanding foreign exchange contracts to fair market value through the
consolidated statements of operations. Therefore, the market risk related to the foreign exchange contracts is
oÅset by the changes in valuation of the underlying items being hedged. The asset or liability representing the
fair value of foreign exchange contracts is classiÑed in the captions ""other current assets'' or ""accrued
expenses and other,'' as applicable, in the accompanying consolidated balance sheets.
The Company has also entered into hedge transactions that convert certain Ñxed rate debt to variable rate
debt, eÅectively hedging the change in fair value of the Ñxed rate debt resulting from Öuctuations in interest
rates. Those fair value hedges and the hedged debt are adjusted to current market values through interest
expense (see Note 7).
The Company does not hedge its investment in its foreign operations nor its Öoating interest rate
exposures. The Company does not enter into derivative Ñnancial instruments for trading or speculative
purposes and monitors the Ñnancial stability and credit standing of its counter parties.
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