Avnet 2001 Annual Report Download - page 46

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throughout North and South America, Europe and the Asia/Pacific
region. To reduce credit risk, management performs ongoing credit
evaluations of its customers’ financial condition. The Company
maintains reserves for potential credit losses, but has not experi-
enced any material losses related to individual customers or groups
of customers in any particular industry or geographic area.
Accounts receivable securitization — 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 gain or loss on
sales of receivables is determined based upon the relative fair value
of the assets sold and the retained interests at the date of transfer.
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 — Many of the Company’s
operations, primarily its international subsidiaries, occasionally
purchase and sell products in currencies other than their functional
currencies. This subjects the Company to the risks associated with
the fluctuations of 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 market risk related to the foreign exchange contracts is offset
by the changes in valuation of the underlying items being hedged.
The amount of risk and the use of derivative financial instruments
described above are not material to the Company’s financial position
or results of operations. The Company does not hedge its investment
in its foreign operations nor its floating interest rate exposures.
Fiscal year — The Company operates on a “52/53 week” fiscal year
which ends on the Friday closest to June 30th. Fiscal year 1999
contained 53 weeks as compared with 52 weeks in fiscal 2001 and
2000. Unless otherwise noted, all references to the “year 2001” or
any other “year” shall mean the Company’s fiscal year.
Management estimates — The preparation of financial statements
in conformity with accounting principles generally accepted in the
United States requires management to make estimates and assump-
tions 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.
New accounting standards — In June 2001, the Financial
Accounting Standards Board issued Statement of Financial
Accounting Standards No. 141 (“SFAS 141”), “Business
Combinations,” and Statement of Financial Accounting Standards
No. 142 (“SFAS 142”), “Goodwill and Other Intangible Assets.”
The new rules will apply to goodwill and intangible assets acquired
after June 30, 2001 and to existing goodwill and intangible assets
upon adoption of SFAS 141 and SFAS 142. The new rules estab-
lish one method of accounting for all business combinations and
the resulting goodwill and other intangible assets. Under SFAS 142,
intangible assets with a finite life will generally continue to be amor-
tized over their lives while intangibles without a finite life, including
goodwill, will no longer be amortized. However, tests for impair-
ment will be performed annually or upon the occurrence of a
triggering event. The Company has the option of adopting the new
rules commencing at the beginning of either fiscal 2002 or fiscal
2003. Management is currently evaluating the potential impact of
the new rules and when those rules will be adopted. Preliminary
estimates based on existing goodwill indicate that adoption could
result in an annual increase in net income of at least $30 million as
a result of the elimination of the amortization of goodwill.
Effective July 1, 2000, the Company adopted the Financial
Accounting Standards Board’s Statement of Financial Accounting
Standards No. 133 (“SFAS 133”), “Accounting for Derivative
Instruments and Hedging Activities,” as amended by Statement of
Financial 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 specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows a
derivative’s gains and losses to offset related results on the hedged
item in the income statement to the extent effective, and requires
that the Company must formally document, designate and assess
Avnet, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
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