Avnet 2014 Annual Report Download - page 51

Table of Contents AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
expense over the terminated employee’
s future service period beyond any minimum retention period. Other costs associated with restructuring or
exit activities may include contract termination costs including operating leases and impairments of long-lived
assets, which are expensed in accordance with ASC 420 and ASC 360, respectively.
Business Combinations —
The Company accounts for business acquisitions using the acquisition method of accounting and records any
identifiable definite-
lived intangible assets separate from goodwill. Intangible assets are recorded at their fair value based on estimates as of the
date of acquisition. Goodwill is recorded as the residual amount of the purchase price consideration less the fair value assigned to the individual
identifiable assets acquired and liabilities assumed as of the date of acquisition. Contingent consideration, which represents an obligation of the
acquirer to transfer additional assets or equity interests to the former owner as part of the exchange if specified future events occur or conditions
are met, is accounted for at the acquisition date fair value either as a liability or as equity depending on the terms of the acquisition agreement.
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 the highest rated financial institutions. To reduce credit risk, management performs ongoing
credit evaluations of its customers’
financial condition and, in some instances, has obtained credit insurance coverage to reduce such risk. The
Company maintains reserves for potential credit losses from customers, but has not historically experienced any material losses related to
individual customers or groups of customers in any particular end market or geographic area.
Fair value —
The Company measures financial assets and liabilities at fair value based upon an 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. During fiscal 2014, 2013, and 2012, 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 28, 2014 due to the short-term nature of these assets and liabilities. At June 28, 2014 and June 29, 2013
, the
Company had $19.7 million and $2.1 million
, respectively, of cash equivalents that were measured at fair value based upon Level 1 criteria. See
Note 7 for further discussion of the fair value of the Company
’s long-
term debt and Note 10 for a discussion of the fair value of the Company's
pension plan assets.
Derivative financial instruments — Many of the Company’
s subsidiaries 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 (i.e., offsetting receivables and payables) as well as by creating offsetting positions through the use
of derivative financial instruments, primarily forward foreign exchange contracts typically with maturities of less than 60 days ("economic
hedges"). The Company continues to have exposure to foreign currency risks to the extent they are not economically hedged. The Company
adjusts any economic hedges to fair value through the consolidated statements of operations primarily within "other income (expense), net."
Therefore, the changes in valuation of the underlying items being economically hedged are offset by the changes in fair value of the forward
foreign exchange contracts. The amounts representing the fair value of forward foreign exchange contracts, based upon Level 2 criteria under the
fair value hierarchy, are classified in the captions “other current assets” or “accrued expenses and other,”
as applicable, in the accompanying
consolidated balance sheets and were not material as of June 28, 2014 and June 29, 2013. The Company did not have material gains or losses
related to the forward foreign exchange contracts during fiscal 2014 and fiscal 2013 .
The Company does not hedge its investments 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 sells certain
receivables and retains a subordinated interest and servicing rights to those receivables. The securitization program does not qualify for sales
accounting and is accounted for as a secured financing as discussed further in Note 3.
Recently issued accounting pronouncements —
In July 2013, the Financial Accounting Standards Board ("FASB") issued Accounting
Standards Update No. 2013-
11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a
Tax Credit Carryforward Exists ("ASU 2013-11"). ASU 2013-
11 requires the netting of unrecognized tax benefits ("UTBs") against a deferred
tax asset for a loss or other carryforward that would apply in settlement of the uncertain tax
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