Avnet 2002 Annual Report Download - page 65

AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Disposition of discontinued operations:
On October 10, 2000, the Company sold K*TEC Electronics Corporation (""K*TEC''), its contract
manufacturing operation, for $237,200,000, consisting of $175,000,000 in cash, a $50,000,000 senior secured
note which was redeemed on January 26, 2001 and a $12,200,000 unsecured note which was settled during
2002. A gain on the sale of K*TEC of approximately $21,500,000 pre-tax, $12,889,000 after-tax, or $0.11 per
diluted share, was recorded in 2001. The net assets and operations of K*TEC are reÖected as discontinued
operations in the accompanying consolidated Ñnancial statements. Corporate and shared general and
administrative costs of the Company were not allocated to discontinued operations. The net assets and results
of operations of K*TEC were not material in the years presented and therefore the condensed Ñnancial
information of the discontinued operations has not been presented herein.
3. Accounts receivable securitization:
In June 2001, the Company entered into a Ñve-year accounts receivable securitization program (the
""Program'') with a Ñnancial institution. The Program agreement was amended in February 2002 to include
participation by a second Ñnancial institution. The Program allows the Company to sell, on a revolving basis,
an undivided interest in up to $350,000,000 in eligible U.S. receivables while retaining a subordinated interest
in a portion of the receivables. The eligible receivables are sold without legal recourse to third party conduits
through a wholly owned bankruptcy-remote special purpose entity that is consolidated for Ñnancial reporting
purposes. The Company continues servicing the sold receivables and charges the third party conduits a
monthly servicing fee at market rates; accordingly, no servicing asset or liability has been recorded. Cash
received from the Program has been used primarily to pay down outstanding external Ñnancing.
The Program qualiÑes for sale treatment under SFAS 140. As of June 28, 2002 and June 29, 2001, the
outstanding balance of securitized accounts receivable held by the third party conduits totaled $324,570,000
and $513,138,000, respectively, of which the Company's subordinated retained interest was $124,570,000 and
$163,138,000, respectively. Accordingly, $200,000,000 and $350,000,000 of accounts receivable balances, net
of applicable allowances, were removed from the consolidated balance sheets at June 28, 2002 and June 29,
2001, respectively, with those funds being used to reduce outstanding debt. Expenses associated with the
Program totaled $10,130,000 and $3,896,000 in the years ended June 28, 2002 and June 29, 2001, respectively.
In 2002, $8,511,000 of these expenses related primarily to the loss on sale of receivables and discount on
retained interests, net of the related servicing revenues, are recorded in interest expense in the accompanying
consolidated statement of operations with the remainder, representing program and facility fees and
professional fees associated with the Program, recorded to selling, general and administrative expenses. The
entire 2001 charge is included in selling, general and administrative expenses.
The Company measures the fair value of its retained interests at the time of a securitization and
throughout the term of the Program using a present value model incorporating two key assumptions: (1) a
weighted average life of 45 days and (2) a discount rate of 6.75% per annum. At June 28, 2002, a 10 and
20 percent adverse change in the assumed weighted average life or the assumed discount rate would not have a
material impact on the Company's Ñnancial position or results of operations.
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