Avnet 2007 Annual Report Download - page 54

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 — 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 securitization program is accounted for as an on-balance sheet financing
through the securitization of accounts receivable (see Note 3). 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 flows using management’s best estimates of
the key assumptions, including collection period and discount rates.
Derivative financial instruments — The Company accounts for derivative financial 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 and Statement of Financial Accounting
Standards No. 149, Amendment of Statement 133 on 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 fluctuations of foreign currency
exchange rates. The Company reduces this risk by utilizing natural hedging (offsetting receivables and payables) as
well as by creating offsetting positions through the use of derivative financial 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 offset by the changes in
valuation of the underlying items being hedged. The asset or liability representing the fair value of foreign exchange
contracts is classified in the captions “other current assets” or “accrued expenses and other,” as applicable, in the
accompanying consolidated balance sheets.
The Company has also entered into hedge transactions that convert certain fixed rate debt to variable rate debt,
effectively hedging the change in fair value of the fixed rate debt resulting from fluctuations in interest rates. To the
extent the Company enters into such hedge transactions, those fair value hedges and the hedged debt are adjusted to
current market values through interest expense in accordance with SFAS 133, as amended (see Note 7).
The Company generally does not hedge its investment in its foreign operations. The Company does not enter
into derivative financial instruments for trading or speculative purposes and monitors the financial stability and
credit standing of its counterparties.
Fiscal year — The Company operates on a “52/53 week” fiscal year, which ends on the Saturday closest to
June 30th. Fiscal 2007, 2006 and 2005 all contained 52 weeks. Unless otherwise noted, all references to “fiscal
2007” or any other “year” shall mean the Company’s fiscal year.
Management estimates — The preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions that affect certain reported amounts
of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual results could differ from those
estimates.
Recent accounting pronouncements — In December 2006, the FASB issued Staff Position No. EITF 00-19-2,
Accounting for Registration Payment Arrangements (“FSP EITF 00-19-2”). FSP EITF 00-19-2 specifics that the
contingent obligation to make future payments or otherwise transfer consideration under a registration payment
arrangement, whether issued as a separate arrangement or included as a provision of a financial instrument or other
54
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)