Avnet 2012 Annual Report Download - page 48

Table of Contents
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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.
Fair value of financial instruments —
The Company measures financial assets and liabilities at fair value based upon exit price,
representing the amount that would be received on the sale of an asset or paid to transfer a liability, in an orderly transaction between market
participants. Accounting standards require inputs used in valuation techniques for measuring fair value on a recurring or non-
recurring basis be
assigned to a hierarchical level as follows: Level 1 are observable inputs that reflect quoted prices for identical assets or liabilities in active
markets. Level 2 are observable market-
based inputs or unobservable inputs that are corroborated by market data and Level 3 are unobservable
inputs that are not corroborated by market data. The carrying amounts of the Company’
s financial instruments, including cash and cash
equivalents, receivables and accounts payable approximate their fair values at June 30, 2012 due to the short-
term nature of these instruments. At
June 30, 2012 and July 2, 2011 , the Company had $337,405,000 and $164,157,000
, respectively, of cash equivalents which were recorded
based upon Level 1 criteria. 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.
Derivative financial instruments — 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 fluctuations in 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 continues to
have exposure to foreign currency risks to the extent they are not hedged. 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, based upon Level 2 criteria under the fair value measurements standards, is classified in the captions
“other current assets” or “accrued expenses and other,”
as applicable, in the accompanying consolidated balance sheets and were not material. In
addition, the Company did not have material gains or losses related to the forward contracts which are recorded in “other income (expense), net”
in the accompanying consolidated statements of operations.
The Company has, from time to time, entered into hedge transactions that convert certain fixed rate debt to variable rate debt. 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.
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.
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 securitization program
is accounted for as an on-balance sheet financing through the securitization of accounts receivable (see Note 3).
Fiscal year — The Company operates on a “52/53 week” fiscal year, which ends on the Saturday closest to June 30th. Fiscal 2012
and
2011 contained 52 weeks while fiscal 2010 contained 53 weeks. Unless otherwise noted, all references to “fiscal 2012 ” 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.
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