Avnet 2006 Annual Report Download - page 59

AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
recognizes the sale and cost of sale of the product upon receiving notification from the supplier that the
product has shipped.
In addition, the Company has more limited contractual relationships with certain of its customers and
suppliers whereby Avnet assumes an agency relationship in the transaction as defined by EITF 99-19. In such
arrangements, the Company recognizes the fee associated with serving as an agent in sales with no associated
cost of sales.
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. Provisions are made
for discounts and rebates, which are primarily volume-based, and are based on historical trends and
anticipated customer buying patterns. Provisions for returns are estimated based on historical sales returns,
credit memo analysis and other known factors.
Comprehensive income Ì Comprehensive income represents net income for the year adjusted for
changes in shareholders' equity from non-shareholder sources. Cumulative comprehensive income items
typically include currency translation and the impact of the Company's additional minimum pension liability,
net of tax (see Note 4).
Stock-based compensation Ì Beginning in fiscal 2006, the Company adopted Statement of Financial
Accounting Standards No. 123 (Revised 2004), Share-based Payment (""SFAS 123R''), which revises
SFAS No. 123, Accounting for Stock-based Compensation and supersedes Accounting Principles Board
Opinion No. 25 (""APB 25''), Accounting for Stock Issued to Employees. SFAS 123R requires all share-based
payments to employees, including grants of employee stock options, be measured at fair value and expensed in
the consolidated statement of operations over the service period (see Note 12). Prior to fiscal 2006, the
Company accounted for its stock-based compensation plans using the intrinsic value method initially
prescribed by APB 25. In applying APB 25, no expense was recognized upon grant of stock options under the
Company's various stock option plans, except in the rare circumstances where the exercise price was less than
the fair market value on the grant date, nor was expense recognized in connection with shares purchased by
employees under the Employee Stock Purchase Plan (see Note 12).
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 financial 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' financial 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 financial instruments Ì The carrying amounts of the Company's financial instruments,
including cash and cash equivalents, receivables and accounts payable approximate their fair values at July 1,
2006 due to the short-term nature of these instruments. See Note 7 for further discussion of the fair value of
the Company's fixed 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
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