Ingram Micro 2006 Annual Report Download - page 68

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the valuation of the underlying items being hedged. The Company currently does not use derivative financial
instruments for trading or speculative purposes, nor is the Company a party to leveraged derivatives.
Foreign exchange risk is managed primarily by using forward contracts to hedge foreign currency denom-
inated receivables and payables. Currency interest rate swaps are used to hedge foreign currency denominated
principal and interest payments related to intercompany loans.
All derivatives are recorded in the Company’s consolidated balance sheet at fair value. The estimated fair value
of derivative financial instruments represents the amount required to enter into similar offsetting contracts with
similar remaining maturities based on quoted market prices. Changes in the fair value of derivatives not designated
as hedges are recorded in current earnings.
The notional amount of forward exchange contracts is the amount of foreign currency bought or sold at
maturity. The notional amount of interest rate swaps is the underlying principal amount used in determining the
interest payments exchanged over the life of the swap. Notional amounts are indicative of the extent of the
Company’s involvement in the various types and uses of derivative financial instruments and are not a measure of
the Company’s exposure to credit or market risks through its use of derivatives.
Credit exposure for derivative financial instruments is limited to the amounts, if any, by which the counter-
parties’ obligations under the contracts exceed the obligations of the Company to the counterparties. Potential credit
losses are minimized through careful evaluation of counterparty credit standing, selection of counterparties from a
limited group of high-quality institutions and other contract provisions.
Derivative financial instruments comprise the following:
Notional
Amounts
Estimated
Fair Value
Notional
Amounts
Estimated
Fair Value
2006 2005
Fiscal Year End
Foreign exchange forward contracts ......... $1,303,701 $(5,199) $1,486,538 $43,556
Comprehensive Income
Statement of Financial Accounting Standards No. 130, “Reporting Comprehensive Income” (“FAS 130”)
establishes standards for reporting and displaying comprehensive income and its components in the Company’s
consolidated financial statements. Comprehensive income is defined in FAS 130 as the change in equity (net assets)
of a business enterprise during a period from transactions and other events and circumstances from nonowner
sources and is comprised of net income and other comprehensive income (loss).
The components of comprehensive income are as follows:
2006 2005 2004
Fiscal Year
Net income ....................................... $265,766 $216,906 $219,901
Changes in foreign currency translation adjustments ......... 85,113 (76,666) 51,178
Comprehensive income............................... $350,879 $140,240 $271,079
Accumulated other comprehensive income included in stockholders’ equity totaled $108,437, $23,324 and
$99,990 at December 30, 2006, December 31, 2005 and January 1, 2005, respectively, and consisted solely of
foreign currency translation adjustments.
Earnings Per Share
The Company reports a dual presentation of Basic Earnings Per Share (“Basic EPS”) and Diluted Earnings Per
Share (“Diluted EPS”). Basic EPS excludes dilution and is computed by dividing net income by the weighted
44
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)