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Table of Contents
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Revenue recognition — Revenue from product sales is recognized when persuasive evidence of an arrangement
exists, delivery has occurred or services have been rendered, the sales price is fixed or determinable and collectibility
is reasonably assured. Generally, these criteria are met upon shipment to customers. Most of the Company’s product
sales come from product Avnet purchases from a supplier and holds in inventory. A portion of the Company’s sales
are shipments of product directly from its suppliers to its customers. In such circumstances, Avnet negotiates the
price with the customer, pays the supplier directly for the product shipped and bears credit risk of collecting payment
from its 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 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. 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.
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 (loss) — Comprehensive income (loss) represents net income (loss) 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 — The Company measures share-based payments, including grants of employee
stock options, at fair value and recognizes the associated expense in the consolidated statement of operations over the
service period (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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