Avnet 2011 Annual Report Download - page 50

Table of Contents
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Comprehensive income (loss) —
Comprehensive income (loss) represents net income (loss) for the year adjusted for changes in
shareholders’ equity from non-
shareholder sources. Accumulated comprehensive income items typically include currency translation
and the impact of the Company’s pension liability adjustment, net of tax (see Note 4).
Stock-based compensation —The Company measures share-
based payments, including grants of employee stock options, at fair
value and recognizes the associated expense in the consolidated statement of operations over the service period (see Note 12).
Concentration of credit risk —
Financial instruments that 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 and institutional money market funds with quality financial institutions. The Company sells
electronic components and computer products primarily to original equipment and contract manufacturers, including the military and
military contractors, throughout the world. To reduce credit risk, management performs ongoing credit evaluations of its customers’
financial condition and, in some instances, has obtained insurance coverage to reduce such risk. The Company 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 financial instruments —
The Company measures financial assets and liabilities at fair value based upon exit price,
representing the amount that would be received on the sale of an asset or paid to transfer a liability, in an orderly transaction between
market participants. Accounting standards require inputs used in valuation techniques for measuring fair value on a recurring or non-
recurring basis be assigned to a hierarchical level as follows: Level 1 are observable inputs that reflect quoted prices for identical
assets or liabilities in active markets. Level 2 are observable market-
based inputs or unobservable inputs that are corroborated by
market data and Level 3 are unobservable inputs that are not corroborated by market data. The carrying amounts of the Company’
s
financial instruments, including cash and cash equivalents, receivables and accounts payable approximate their fair values at July 2,
2011 due to the short-
term nature of these instruments. At July 2, 2011 and July 3, 2010, the Company had $164,157,000 and
$643,281,000, respectively, of cash equivalents which were recorded based upon Level 1 criteria. 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.
Derivative financial instruments — 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 continues to have exposure to foreign currency risks to the extent they are not hedged. 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, based
upon Level 2 criteria under the fair value measurements standards, is classified in the captions “other current assets” or “
accrued
expenses and other,”
as applicable, in the accompanying consolidated balance sheets and were not material. In addition, the Company
did not have material gains or losses related to the forward contracts which are recorded in “other income (expense), net”
in the
accompanying consolidated statements of operations.
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.
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.
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
securitization program is accounted for as an on-
balance sheet financing through the securitization of accounts receivable (see Note 3).
45