Avnet 2008 Annual Report Download - page 51

Table of Contents
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
customers. Furthermore, in such drop-shipment arrangements, Avnet bears responsibility for accepting returns of
product from the customer even if Avnet, in turn, has a right to return the product to the original supplier if the
product is defective. Under these terms, the Company serves as the principal with the customer, as defined under
SAB 104 and Emerging Issues Task Force Issue No. 99-19 (“EITF 99-19”), Reporting Revenue Gross as a Principal
versus Net as an Agent, and therefore 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.
During the third quarter of fiscal 2007, in conjunction with the acquisition of Access (see Note 2) and reflecting
recent industry trends, the Company reviewed its method of recording revenue related to the sales of supplier service
contracts and determined that such sales were to be classified on a net revenue basis rather than on a gross basis
beginning the third quarter of fiscal 2007. Although this change reduced sales and cost of sales for the Technology
Solutions (“TS”) operating group and on a consolidated basis, it had no impact on operating income, net income,
cash flow or the balance sheet. The impact of this change on prior periods is that sales and cost of sales would have
been reduced by $214,417,000, or 2.8%, for the first half of fiscal 2007 which is the period in fiscal 2007 before the
change was effective, and by $387,326,000, or 2.7%, for fiscal 2006.
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 — Comprehensive income represents net income for the year adjusted for changes in
shareholders’ equity from non-shareholder sources. Accumulated comprehensive income items typically include
currency translation and the impact of the Company’s pension liability adjustment, net of tax (see Note 4).
Stock-based compensation — Beginning in fiscal 2006, the Company adopted Statement of Financial
Accounting Standards No. 123 (Revised 2004), Share-based Payment (“SFAS 123R”),
which revised 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, 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 —
Financial instruments that potentially subject the Company to a concentration 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.
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