Ingram Micro 2013 Annual Report Download - page 25

Table of Contents
•  — We receive funds from vendors for price protection, product return privileges, product rebates, marketing/promotion,
infrastructure reimbursement and meet-competition programs, which are recorded as adjustments to product costs, revenue, or SG&A expenses
according to the nature of the program. Some of these programs may extend over more than one quarterly reporting period. We accrue rebates or other
vendor incentives as earned based on sales of qualifying products or as services are provided in accordance with the terms of the related program.
Actual rebates may vary based on actual volume or other sales achievement levels, which could result in an increase or reduction in the estimated
amounts previously accrued. We also provide reserves for receivables on vendor programs for estimated losses resulting from vendors’ inability to pay
or rejections of claims by vendors.
• — Our inventory levels are based on our projections of future demand and market conditions. Any sudden decline in demand and/or rapid
product improvements and technological changes could cause us to have excess and/or obsolete inventory. On an ongoing basis, we review for
estimated excess or obsolete inventory and write down our inventory to its estimated net realizable value based upon our forecasts of future demand and
market conditions. If actual market conditions are less favorable than our forecasts, additional inventory write-downs may be required. Our estimates
are influenced by a number of considerations, including: protection from loss in value of inventory under our vendor agreements; our rights to return
inventory to vendors in accordance with contractual stipulations; aging of inventory; changes in demand due to the economic environment; rapid
product improvements and technological changes and historical loss experience.
•       — The cost of an acquired company is assigned to the tangible and intangible assets
purchased and liabilities assumed on the basis of fair values at the date of acquisition. The determination of fair values of assets acquired and
liabilities assumed requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of
the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, and determination of our weighted average
cost of capital. Any excess of purchase price over the fair value of net tangible and intangible assets acquired is allocated to goodwill. Goodwill
typically represents the value paid for the assembled workforce and enhancement of our service offerings.
Identifiable amortizable intangible assets include customer relationships, trade names, technology and other assets. The costs of these intangible assets
are amortized over their estimated economic lives, which range from three to twenty years. We assess the recoverability of the unamortized balance of
our intangible assets, indefinite-lived intangible assets and other long-lived assets when indicators of impairment are present based on expected future
profitability, undiscounted expected cash flows and their contribution to our overall operations. Should the review indicate that the carrying value is
not fully recoverable; the excess of the carrying value over the fair value of the intangible assets would be recognized as an impairment loss.
We perform our annual goodwill impairment review during our fiscal fourth quarter, using a combination of the income and market approach. Our
annual review indicated that we had no impairment of goodwill, and all of our reporting units had estimated fair values that were in excess of their
carrying values, including goodwill. In addition, we regularly evaluate whether events and circumstances have occurred that may indicate a potential
change in recoverability of goodwill, including a deterioration in general economic conditions, an increased competitive environment, a change in
management, key personnel, strategy, vendors, or customers, negative or declining cash flows, or a decline in actual or planned revenue or earnings
compared with actual and projected results of relevant prior periods.
We believe the methodology that we use to review impairment of goodwill, which includes a significant amount of judgment and estimates, provides us
with a reasonable basis to determine whether impairment has occurred. However, many of the factors employed in determining whether our goodwill is
impaired are outside of our control and it is reasonably likely that assumptions and estimates will change in future periods. These changes could
result in future impairments.
•  — 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 the future tax impact of
differences resulting from the different treatment of certain items, such as the timing for recognizing revenues and expenses for tax versus 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 the nature of the
deferred tax assets and related statutory limits on utilization, recent operating results, 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 amounts not likely to be realized.
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