Ingram Micro 2008 Annual Report Download - page 39

We compared a weighted average of the output from the income and market approaches to the carrying value
of each reporting unit, which yielded an indication of impairment in each of the North America, EMEA and
Asia-Pacific reporting units. We also compared the aggregate of the estimated fair values of each of our four
regional reporting units to our overall market capitalization, taking into account an acceptable control
premium considered supportable based upon historical comparable transactions.
Step two of the impairment test requires us to compute a fair value of the assets and liabilities, including
identifiable intangible assets, within each of the three reporting units with indications of impairment, and
compare the implied fair value of goodwill to its carrying value. The results of step two indicated that the
goodwill for each of the North America, EMEA and Asia Pacific reporting units was fully impaired. As a
result, we recorded a charge of $742.6 million in the fourth quarter of 2008, which is made up of
$243.2 million, $24.1 million and $475.3 million in carrying value of goodwill prior to the impairment
in North America, EMEA and Asia-Pacific, respectively. This non-cash charge materially impacted our
equity and results of operations in 2008, but does not impact our ongoing business operations, liquidity, cash
flow or compliance with covenants for our credit facilities.
We also assess potential impairment of our other identifiable intangible assets and other long-lived assets
when there is evidence that recent events or changes in circumstances such as significant changes in the
manner of use of the asset, negative industry or economic trends, and significant underperformance relative
to historical or projected future operating results, have made recovery of an asset’s carrying value unlikely.
The amount of an impairment loss would be recognized as the excess of the asset’s carrying value over its
fair value. We conducted impairment tests of our intangible assets and other long-lived assets in the fourth
quarter of 2008. Our results indicated that the carrying value of these assets was recoverable from
undiscounted cash flows and no impairment was indicated.
•Income Taxes — As part of the process of preparing our consolidated financial statements, we estimate our
income taxes in each of the taxing jurisdictions in which we operate. This process involves estimating our
actual current tax expense together with assessing any temporary differences resulting from the different
treatment of certain items, such as the timing for recognizing revenues and expenses for tax and financial
reporting purposes. These differences may result in deferred tax assets and liabilities, which are included in
our consolidated balance sheet. We are required to assess the likelihood that our deferred tax assets, which
include net operating loss carryforwards, tax credits and temporary differences that are expected to be
deductible in future years, will be recoverable from future taxable income. In making that assessment, we
consider future market growth, forecasted earnings, future taxable income, the mix of earnings in the
jurisdictions in which we operate and prudent and feasible tax planning strategies. If, based upon available
evidence, recovery of the full amount of the deferred tax assets is not likely, we provide a valuation
allowance on any amount not likely to be realized. Our effective tax rate includes the impact of not providing
U.S. taxes on undistributed foreign earnings considered indefinitely reinvested. Material changes in our
estimates of cash, working capital and long-term investment requirements in the various jurisdictions in
which we do business could impact our effective tax rate.
The provision for tax liabilities and recognition of tax benefits involves evaluations and judgments of
uncertainties in the interpretation of complex tax regulations by various taxing authorities. In situations
involving uncertain tax positions related to income tax matters, we do not recognize benefits unless it is more
likely than not that they will be sustained. As additional information becomes available, or these uncertainties
are resolved with the taxing authorities, revisions to these liabilities or benefits may be required, resulting in
additional provision for or benefit from income taxes reflected in our consolidated statement of income.
•Contingencies and Litigation — There are various claims, lawsuits and pending actions against us,
including those noted in Item 3. If a loss arising from these actions is probable and can be reasonably
estimated, we record the amount of the estimated loss. If the loss is estimated using a range within which no
point is more probable than another, the minimum estimated liability is recorded. As additional information
becomes available, we assess any potential liability related to these actions and may need to revise our
estimates. Ultimate resolution of these matters could materially impact our consolidated results of oper-
ations, cash flows or financial position (see Note 10 to our consolidated financial statements).
29