Ingram Micro 2008 Annual Report Download - page 52

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During 2008, hedged transactions were denominated in U.S. dollars, Canadian dollars, euros, British pound, Danish
krone, Hungarian forint, Norwegian kroner, Swedish krona, Swiss francs, Israeli shekel, Australian dollars, Chinese
yuan, Indian rupees, Malaysian ringit, New Zealand dollars, Singaporean dollars, Sri Lankan rupees, Thai baht,
Argentine peso, Brazilian reais, Chilean peso and Mexican peso.
We are exposed to changes in interest rates primarily as a result of our long-term debt used to maintain liquidity
and finance working capital, capital expenditures and business expansion. Our management objective is to finance
our business at interest rates that are competitive in the marketplace. To achieve our objectives, we rely primarily on
variable-rate debt with some interest rate exposure offset through interest rate swaps.
Market Risk Management
Foreign exchange and interest rate risk and related derivatives used are monitored using a variety of techniques
including a review of market value, sensitivity analysis and Value-at-Risk (“VaR”). The VaR model determines the
maximum potential loss in the fair value of market-sensitive financial instruments assuming a one-day holding
period. The VaR model estimates were made assuming normal market conditions and a 95% confidence level.
There are various modeling techniques that can be used in the VaR computation. Our computations are based on
interrelationships between currencies and interest rates (a “variance/co-variance” technique). The model includes
all of our forwards, cross-currency and other interest rate swaps, fixed-rate debt and nonfunctional currency
denominated cash and debt (i.e., our market-sensitive derivative and other financial instruments as defined by the
U.S. Securities and Exchange Commission). The accounts receivable and accounts payable denominated in foreign
currencies, which certain of these instruments are intended to hedge, were excluded from the model.
The VaR model is a risk analysis tool and does not purport to represent actual losses in fair value that will be
incurred by us, nor does it consider the potential effect of favorable changes in market rates. It also does not
represent the maximum possible loss that may occur. Actual future gains and losses will likely differ from those
estimated because of changes or differences in market rates and interrelationships, hedging instruments and hedge
percentages, timing and other factors.
The following table sets forth the estimated maximum potential one-day loss in fair value, calculated using the
VaR model (in millions). We believe that the hypothetical loss in fair value of our derivatives would be offset by
gains in the value of the underlying transactions being hedged.
Interest Rate
Sensitive Financial
Instruments
Currency Sensitive
Financial
Instruments Combined
Portfolio
VaR as of January 3, 2009 .................. $8.8 $0.5 $4.1
VaR as of December 29, 2007................ 8.4 0.0 6.1
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information concerning quantitative and qualitative disclosures about market risk is included under the
captions “Market Risk” and “Market Risk Management” in “Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations” in this Annual Report on Form 10-K.
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