Avnet 2005 Annual Report Download - page 57

AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
consolidated statements of operations. Therefore, the market risk related to the foreign exchange contracts is
offset by the changes in valuation of the underlying items being hedged. The asset or liability representing the
fair value of foreign exchange contracts is classified 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 fixed rate debt to variable rate
debt, effectively hedging the change in fair value of the fixed rate debt resulting from fluctuations in interest
rates. Those fair value hedges and the hedged debt are adjusted to current market values through interest
expense in accordance with SFAS 133, as amended (see Note 7).
The Company generally does not hedge its investment in its foreign operations nor its floating interest
rate exposures. The Company does not enter into derivative financial instruments for trading or speculative
purposes and monitors the financial stability and credit standing of its counter parties.
Fiscal year Ì The Company operates on a ""52/53 week'' fiscal year, which ends on the Saturday closest
to June 30th (Friday closest to June 30th in fiscal year 2003). Fiscal 2005 and 2003 contained 52 weeks as
compared with 53 weeks in fiscal 2004. Unless otherwise noted, all references to ""fiscal 2005'' or any other
""year'' shall mean the Company's fiscal year.
Management estimates Ì The preparation of financial statements in conformity with U.S. generally
accepted accounting principles 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.
Recent accounting pronouncements Ì In May 2005, the FASB issued Statement of Financial Account-
ing Standard No. 154 (""SFAS 154''), Accounting Changes and Error Corrections. SFAS 154 applies to all
voluntary changes in accounting principle as well as to changes required by an accounting pronouncement that
does not include specific transition provisions. SFAS 154 eliminates the requirement in Accounting Principles
Board Opinion No. 20, Accounting Changes, to include the cumulative effect of changes in accounting
principle in the income statement in the period of change and, instead, requires changes in accounting
principle to be retrospectively applied. Retrospective application requires the new accounting principle to be
applied as if the change occurred at the beginning of the first period presented by modifying periods previously
reported, if an estimate of the prior period impact is practicable and estimable. SFAS 154 is effective for
accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The
Company does not currently anticipate any changes in accounting principle other than the adoption of
SFAS 123(R) discussed below, which has its own adoption transition provision and is therefore not in the
scope of SFAS 154. As a result, Avnet does not believe the adoption of SFAS 154 will have a material impact
on the Company's consolidated financial statements.
In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payments
(""SFAS 123(R)'') which revises SFAS No. 123, Accounting for Stock-Based Compensation and supersedes
APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS 123(R) requires all share-based
payments to employees, including grants of employee stock options, be measured at fair value and expensed in
the consolidated statement of operations over the service period (generally the vesting period). SFAS 123(R)
is effective in Avnet's first quarter of fiscal 2006 at which point the Company has now begun to record the
expense associated with share-based payments to employees. Upon adoption subsequent to fiscal 2005, the
Company transitioned to SFAS 123(R) using the modified prospective application, whereby compensation
cost is only recognized in the consolidated statements of operations beginning with the first period that
SFAS 123(R) is effective and thereafter, with prior periods still presented on a pro forma basis. Management
has not yet quantified what the precise impact of adopting SFAS 123(R) will be in the first quarter of fiscal
2006 and thereafter. However, the pro-forma impacts of expensing share-based payments on the periods
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