Avnet 2004 Annual Report Download - page 49

AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of SigniÑcant Accounting Policies:
Principles of consolidation Ì The accompanying consolidated Ñnancial statements include the accounts
of the Company and all of its subsidiaries. All intercompany accounts and transactions have been eliminated.
Cash and cash equivalents Ì The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. At June 27, 2003, cash and cash equivalents include
$78,543,000 of cash restricted and held in an escrow account. This escrow balance consisted of a portion of the
proceeds from the Company's issuance in February 2003 of $475,000,000 of 9
3
/ 4 % Notes due February 15,
2008, which was subsequently used to repay the remaining principal on the 6.45% Notes due August 15, 2003
and the 8.20% Notes due October 17, 2003 at their respective maturity dates plus interest due through their
maturities (see Note 7). There were no remaining balances held in escrow as of July 3, 2004.
Inventories Ì Inventories, comprised principally of Ñnished goods, are stated at cost (Ñrst-in, Ñrst-out) or
market, whichever is lower.
Investments Ì Investments in joint ventures and entities in which the Company has an ownership
interest greater than 50% and exercises control over the venture are consolidated in the accompanying
consolidated Ñnancial statements. Minority interests in the years presented, which amounts are not material,
are included in the caption ""accrued expenses and other'' in the accompanying consolidated balance sheets.
The Company invests from time to time in ventures in which the Company's ownership interest is less than
20% and over which the Company does not exercise signiÑcant inÖuence. Such investments are accounted for
under the cost method. The fair values for investments not traded on a quoted exchange are estimated based
upon the performance of the ventures historically, the ventures' forecasted Ñnancial performance and
management's evaluation of the ventures' viability and business models. To the extent the book value of an
investment exceeds its assessed fair value, the Company will record an appropriate impairment charge (see
Note 17). Thus, the carrying value of the Company's investments approximates fair value.
Depreciation and amortization Ì Depreciation and amortization is generally provided for by the straight-
line method over the estimated useful lives of the assets. The estimated useful lives for depreciation and
amortization are typically as follows: buildings Ì 30 years; machinery, Ñxtures and equipment Ì 2-10 years;
and leasehold improvements Ì over the applicable remaining lease term or useful life if shorter.
Long-lived assets Ì Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be recoverable. The Company
continually evaluates the carrying value and the remaining economic useful life of all long-lived assets and will
adjust the carrying value and the related depreciation and amortization period if and when appropriate.
Goodwill Ì Goodwill represents the excess of the purchase price over the fair value of net assets
acquired. The Company has no other material identiÑable intangible assets besides goodwill. The Company
adopted the provisions of the FASB's Statement of Financial Accounting Standards No. 142 (""SFAS 142''),
Goodwill and Other Intangible Assets, eÅective June 30, 2001, the Ñrst day of the Company's Ñscal year 2002.
SFAS 142 requires that ratable amortization of goodwill be replaced with periodic tests for goodwill
impairment (see Note 6). The Company conducts its periodic test for goodwill impairment annually, on the
Ñrst day of the Ñscal fourth quarter.
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. Transactions
denominated in currencies other than the functional currency of the Avnet business unit that is party to the
transaction (primarily trade receivables and payables) are translated at exchange rates in eÅect at the balance
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