Avnet 2002 Annual Report Download - page 60

AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Foreign currency translation Ì The assets and liabilities of foreign operations are translated into
U.S. dollars at the exchange rates in eÅect at the balance sheet date, with the related translation gains and
losses reported as a separate component of shareholders' equity and comprehensive income. Results of
operations are translated using the average exchange rates prevailing throughout the period.
Income taxes Ì The Company follows the asset and liability method of accounting for income taxes.
Deferred tax assets and liabilities are recognized for the estimated future tax impact of diÅerences between the
Ñnancial statement carrying amounts of assets and liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates in eÅect for the year in which those temporary diÅerences
are expected to be recovered or settled. The eÅect on deferred tax assets and liabilities of a change in tax rates
is recognized in earnings in the period in which the new rate is enacted.
No provision for U.S. income taxes has been made for approximately $206,900,000 of cumulative
unremitted earnings of foreign subsidiaries at June 28, 2002 because those earnings are expected to be
permanently reinvested outside the U.S.
Self-insurance Ì The Company is primarily self-insured for workers' compensation, and general, product
and automobile liability costs; however, the Company also has a stop-loss insurance policy in place to limit the
Company's exposure to individual and aggregate claims made. Liabilities for these programs are estimated
based upon outstanding claims and claims estimated to have been incurred but not yet reported based upon
historical loss experience. These estimates are subject to variability due to changes in trends of losses for
outstanding claims and incurred but not recorded claims, including external factors such as future inÖation
rates, beneÑt level changes and claim settlement patterns.
Stock split Ì On August 31, 2000, the Board of Directors of the Company declared a two-for-one stock
split to be eÅected in the form of a stock dividend. The additional common stock was distributed on
September 28, 2000 to shareholders of record on September 18, 2000. All references in this report to the
number of shares, per share amounts and market prices of the Company's common stock have been restated to
reÖect the stock split and the resulting increased number of shares outstanding.
Revenue recognition Ì Revenue from product sales is generally recognized upon shipment to customers.
Revenues and anticipated proÑts under long-term contracts are recorded on the percentage of completion
basis, under which a portion of the total contract price is accrued based on the ratio of costs incurred to
estimated costs at completion. Revenues from maintenance contracts are recognized ratably over the life of
the contracts, ranging from one to three years. Revenues are recorded net of discounts, rebates and estimated
returns.
Shipping and handling fees and costs Ì The Company recognizes amounts billed to a customer in a sale
transaction related to shipping and handling as revenue. The costs incurred by the Company for shipping and
handling are classiÑed as cost of sales.
Comprehensive income (loss) Ì Comprehensive income (loss) represents net income (loss) for the year
adjusted for changes in shareholders' equity from non-shareholder sources. Cumulative comprehensive
income (loss) items consist of currency translation, valuation adjustments for marketable securities, net of tax,
and the impact of the Company's additional minimum pension liability, net of tax.
Concentration of credit risk Ì Financial instruments that potentially subject the Company to a concen-
tration 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 Ñnancial institutions. The Company sells electronic components and computer
products primarily to original equipment manufacturers, including military contractors and the military,
throughout the world. To reduce credit risk, management performs ongoing credit evaluations of its customers'
Ñnancial condition and, in some instances, has obtained insurance coverage to reduce such risk. The Company
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