Avnet 2008 Annual Report Download - page 52

Table of Contents
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Fair value of financial instruments — The carrying amounts of the Company’s financial instruments, including
cash and cash equivalents, receivables and accounts payable approximate their fair values at June 28, 2008 due to the
short-term nature of these instruments. See Note 7 for further discussion of the fair value of the Company’
s fixed rate
long-term debt instruments and see Investments in this Note 1 for further discussion of the fair value of the
Company’s investments in unconsolidated entities.
Accounts receivable securitization —
The Company has an accounts receivable securitization program whereby
the Company may sell receivables in securitization transactions and retain 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 securitization program is accounted for as an on-balance sheet financing through the securitization of
accounts receivable (see Note 3). 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 flows using management’s best estimates of the key assumptions, including
collection period and discount rates.
Derivative financial instruments — The Company accounts for derivative financial instruments in accordance
with 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
and Statement of Financial Accounting
Standards No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities.
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 fluctuations in 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 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 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, from time to time, entered into hedge transactions that convert certain fixed rate debt to
variable rate debt. To the extent the Company enters into such hedge transactions, those fair value hedges and the
hedged debt are adjusted to current market values through interest expense in accordance with SFAS 133, as
amended.
The Company generally does not hedge its investment in its foreign operations. The Company does not enter
into derivative financial instruments for trading or speculative purposes and monitors the financial stability and credit
standing of its counterparties.
Fiscal year — The Company operates on a “52/53 week” fiscal year, which ends on the Saturday closest to
June 30th. Fiscal 2008, 2007 and 2006 all contained 52 weeks. Unless otherwise noted, all references to “fiscal 2008”
or any other “year” shall mean the Company’s fiscal year.
Management estimates — 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.
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