Avnet 2013 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. 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. All transfers between fair value hierarchy levels are recognized by the Company at the end of
each reporting period. During 2013, 2012, and 2011, there were no transfers of assets measured at fair value between the three levels of fair
value hierarchy. The carrying amounts of the Company’
s financial instruments, including cash and cash equivalents, receivables and accounts
payable approximate their fair values at June 29, 2013 due to the short-term nature of these instruments. At June 29, 2013 and June 30, 2012
,
the Company had $2,089,000 and $337,405,000
, 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 Note 10 for a discussion of the fair value of
the Company's Pension plan assets. See also 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 2013 , 2012
,
and 2011 all contained 52 weeks. Unless otherwise noted, all references to “fiscal 2013 ” 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.
Recently issued accounting pronouncements —
In December 2011, the Financial Accounting Standards Board ("FASB") issued ASU No.
2011-11, Disclosures about Offsetting Assets and Liabilities, (“ASU 2011-11”). ASU 2011-11 requires an entity
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