Ingram Micro 2013 Annual Report Download - page 36

Table of Contents
We have guarantees to third parties that provide financing to a limited number of our customers. Net sales under these arrangements accounted for less
than one percent of our consolidated net sales for each of 2013, 2012 and 2011. The guarantees require us to reimburse the third party for defaults by these
customers up to an aggregate of $5,600. The fair value of these guarantees has been recognized as cost of sales to these customers and is included in other
accrued liabilities.
In connection with the acquisition of businesses in 2013 and 2012, we entered into acquisition agreements which include provisions to make additional
contingent consideration payments. As of December 28, 2013, the accrual for potential contingent consideration payments under these agreements is $3,650.
Because our commitments under our employee benefit plans are not fixed amounts, they have not been included in the contractual obligations table.
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See Part I, Item 3. “Legal Proceedings” for discussions of legal matters and contingencies.
New Accounting Standards
See Note 2 to our consolidated financial statements for the discussion of new accounting standards.
Market Risk
We are exposed to the impact of foreign currency fluctuations and interest rate changes due to our international sales and global funding. In the normal
course of business, we employ established policies and procedures to manage our exposure to fluctuations in the value of foreign currencies using a variety of
financial instruments. It is our policy to utilize financial instruments to reduce risks where internal netting cannot be effectively employed and not to enter into
foreign currency or interest rate transactions for speculative purposes.
Our foreign currency risk management objective is to protect our earnings and cash flows resulting from sales, purchases and other transactions from
the adverse impact of exchange rate movements. Foreign exchange risk is managed by using forward contracts to offset exchange risk associated with
receivables and payables. We generally maintain hedge coverage between minimum and maximum percentages. Cross-currency interest rate swaps are used to
hedge foreign currency denominated principal and interest payments related to intercompany and third-party loans. During 2013, hedged transactions were
denominated in U.S. dollars, Canadian dollars, euros, British pounds, Danish krone, Hungarian forint, Israeli shekel, Norwegian kroner, Swedish krona,
Swiss francs, Polish zloty, South African rand, Australian dollars, Chinese yuan, Indian rupees, Malaysian ringgit, New Zealand dollars, Philippine pesos,
Singaporean dollars, Thai baht, Indonesian rupiah, Brazilian reais, Chilean pesos and Mexican pesos.
We are exposed to changes in interest rates on a portion 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 while moderating our
exposure to volatility in interest costs. To achieve our objectives, we may utilize both variable- and fixed-rate debt with a portion of our variable interest rate
exposure from time to time mitigated 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, or 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, 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 SEC). The trade 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.
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