Ingram Micro 2006 Annual Report Download - page 66

The Company sells products purchased from many vendors, but generated approximately 22%, 23% and 22%
of its net sales in fiscal years 2006, 2005 and 2004, respectively, from products purchased from Hewlett-Packard
Company. There were no other vendors that represented 10% or more of the Company’s net sales in each of the last
three years.
Warranties
The Company’s suppliers generally warrant the products distributed by the Company and allow returns of
defective products, including those that have been returned to the Company by its customers. The Company does
not independently warrant the products it distributes; however, local laws might impose warranty obligations upon
distributors (such as in the case of supplier liquidation). The Company is obligated to provide warranty protection
for sales of certain IT products within the European Union (“EU”) for up to two years as required under the EU
directive where vendors have not affirmatively agreed to provide pass-through protection. In addition, the Company
warrants its services, products that it builds-to-order from components purchased from other sources, and its own
branded products. Provision for estimated warranty costs is recorded at the time of sale and periodically adjusted to
reflect actual experience. Warranty expense and the related obligations are not material to the Company’s
consolidated financial statements.
Foreign Currency Translation and Remeasurement
Financial statements of foreign subsidiaries, for which the functional currency is the local currency, are
translated into U.S. dollars using the exchange rate at each balance sheet date for assets and liabilities and a
weighted average exchange rate for each period for statement of income items. Translation adjustments are
recorded in accumulated other comprehensive income, a component of stockholders’ equity. The functional
currency of the Company’s operations in Latin America and certain operations within the Company’s Asia-Pacific
and European regions is the U.S. dollar; accordingly, the monetary assets and liabilities of these subsidiaries are
translated into U.S. dollars at the exchange rate in effect at the balance sheet date. Revenues, expenses, gains or
losses are translated at the average exchange rate for the period, and nonmonetary assets and liabilities are translated
at historical rates. The resultant remeasurement gains and losses of these operations as well as gains and losses from
foreign currency transactions are included in the consolidated statement of income.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and other accrued
expenses approximate fair value because of the short maturity of these items. The carrying amounts of outstanding
debt issued pursuant to bank credit agreements approximate fair value because interest rates over the relative term of
these instruments approximate current market interest rates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less to be cash
equivalents. Book overdrafts of $284,161 and $241,989 as of December 30, 2006 and December 31, 2005,
respectively, are included in accounts payable.
Inventories
Inventories are stated at the lower of average cost or market.
Property and Equipment
Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated
useful lives noted below. The Company also capitalizes computer software costs that meet both the definition of
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INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)