Avnet 2003 Annual Report Download - page 60
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Please find page 60 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.AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì Continued
The fair value of the stock options granted is estimated on the date of grant using the Black-Scholes
option-pricing model. The weighted average assumptions used and the weighted average estimated fair values
of an option granted are as follows:
Years Ended
June 27, June 28, June 29,
2003 2002 2001
Expected life (years) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 6.0 6.0 5.5
Risk-free interest rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3.2% 4.3% 6.0%
VolatilityÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 41.8% 40.7% 37.0%
Dividend yield ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì 0.4% 1.1%
Weighted average fair value ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $5.77 $8.34 $11.33
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 and contract manufacturers, including the military and military
contractors, 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 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 Ñnancial instruments Ì The carrying amounts of the Company's Ñnancial instruments,
including cash and cash equivalents, receivables and accounts payable approximate their fair values at
June 27, 2003 due to the short-term nature of these instruments. See Note 7 for further discussion of the fair
value of the Company's Ñxed 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 Ì 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 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 Öows using management's
best estimates of the key assumptions, including collection period and discount rates (see Note 3).
Derivative Ñnancial instruments Ì The Company accounts for derivative Ñnancial 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.''
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 the Öuctuations of foreign
currency exchange rates. The Company reduces this risk by utilizing natural hedging (oÅsetting receivables
and payables) as well as by creating oÅsetting positions through the use of derivative Ñnancial 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
oÅset by the changes in valuation of the underlying items being hedged. The asset or liability representing the
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