Avnet 2003 Annual Report Download - page 26
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Please find page 26 of the 2003 Avnet annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
For an understanding of the signiÑcant factors that inÖuenced the Company's performance during the
past three Ñscal years, the following discussion should be read in conjunction with the consolidated Ñnancial
statements, including the related notes, and other information appearing elsewhere in this Report. The severe
economic downturn in the technology markets in which the Company competes is a material contributor to
the Ñnancial results discussed in this ""Management's Discussion and Analysis of Financial Condition and
Results of Operations'' (""MD&A'').
Due to the severity and length of the downturn in the electronic component and computer product
industry and in the global economy as a whole, the Company has recorded numerous charges in recent years
that are discussed more fully in ""Restructuring and Other Charges'' in this MD&A. These charges have had a
signiÑcant impact on the Company's results of operations in each of the years presented in this Report as
discussed further below.
In addition to disclosing Ñnancial results that are determined in accordance with accounting principles
generally accepted in the United States (""GAAP''), the Company also discloses pro forma or non-GAAP
measures that may exclude certain items. Management believes that providing this additional information is
useful to the reader to better assess and understand operating performance, especially when comparing results
with previous periods or forecasting performance for future periods. Management believes the pro forma
measures also help indicate underlying trends in the business. Management also uses pro forma information to
establish operational goals and, in some cases, for measuring performance for compensation purposes.
However, analysis of results and outlook on a pro forma or non-GAAP basis should be used as a complement
to, and in conjunction with, data presented in accordance with GAAP.
Please note that unless otherwise speciÑcally indicated, references herein to any particular year or quarter
generally are to the Company's Ñscal year periods. The Company's Ñscal year ends on the Friday closest to
June 30 (Saturday closest to June 30 commencing in 2004).
Critical Accounting Policies
The Company's consolidated Ñnancial statements have been prepared in accordance with GAAP. The
preparation of these consolidated Ñnancial statements requires the Company to make estimates and
assumptions that aÅect the reported amounts of assets, liabilities, revenues and expenses during the reporting
period. These estimates and assumptions are based upon the Company's continuous evaluation of historical
results and anticipated future events. Actual results may diÅer from these estimates under diÅerent
assumptions or conditions.
The Securities and Exchange Commission deÑnes critical accounting polices as those that are, in
management's view, most important to the portrayal of the Company's Ñnancial condition and results of
operations and those that require signiÑcant judgments and estimates. Management believes the Company's
most critical accounting policies relate to:
Valuation of Receivables: The Company maintains an allowance for doubtful accounts for estimated
losses resulting from customer defaults. Bad debt reserves are recorded based upon historic default averages as
well as the Company's regular assessment of the Ñnancial condition of its customers
Valuation of Inventories: Inventories are recorded at the lower of cost (Ñrst in Ì Ñrst out) or estimated
market value. The Company's inventories include high-technology components, embedded systems and
computing technologies sold into rapidly changing, cyclical and competitive markets whereby such inventories
may be subject to early technological obsolescence.
The Company regularly evaluates inventories for excess, obsolescence or other factors that may render
inventories less marketable. Write-downs are recorded so that inventories reÖect the approximate net
realizable value and take into account the Company's contractual provisions with its suppliers, which provide
certain protections to the Company for product obsolescence and price erosion in the form of rights of return
and price protection. Because of the large number of transactions and the complexity of managing the process
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