Tech Data 2013 Annual Report Download - page 52

Table of Contents
of credit extended by the Company to certain of its customers against possible loss. The Company makes provisions for estimated credit losses at
the time of sale. No single customer accounted for more than 10% of the Company’s net sales during fiscal years 2013, 2012 or 2011.
The Company also enters into foreign currency exchange contracts. In the event of a failure to honor one of these contracts by one of the banks with
which the Company has contracted, the Company believes any loss would be limited in most circumstances to the exchange rate differential from
the time the contract was executed until the time the contract was settled. The Company’s foreign currency exchange contracts are executed with
various financial institutions globally that are monitored on a regular basis by the Company for credit quality.
Foreign Currency Translation and Remeasurement
The assets and liabilities of the Company's foreign subsidiaries for which the local currency is the functional currency are translated into U.S.
dollars using the exchange rate in effect at each balance sheet date, with the related translation gains or losses reported as components of other
comprehensive income, included within shareholders’
equity. All income and expense accounts of the Company's foreign subsidiaries for which the
local currency is the functional currency are translated using weighted average exchange rates for each period during the year. The resulting
remeasurement gains and losses of these operations as well as gains and losses from foreign currency transactions are included in the Company's
Consolidated Income Statement.
Derivative Financial Instruments
The Company faces exposure to changes in foreign currency exchange rates and interest rates. The Company reduces its exposure by creating
offsetting positions through the use of derivative financial instruments, in the form of foreign currency forward contracts, in situations where there
are not offsetting balances that create an economic hedge. Substantially all of these instruments have terms of 90 days or less. It is the Company’s
policy to utilize financial instruments to reduce risk where appropriate and prohibit entering into derivative financial instruments for speculative or
trading purposes.
Derivative financial instruments are marked-to-market each period with gains and losses on these contracts recorded in the Company’s
Consolidated Statement of Income within “cost of products sold” for derivative instruments used to manage the Company’s exposure to foreign
denominated accounts receivable and accounts payable and within “Other expense, net” for derivative instruments used to manage the Company’s
exposure to foreign denominated financing transactions. Such mark-to-market gains and losses are recorded in the period in which their value
changes, with the offsetting entry for unsettled positions being recorded to either other current assets or other current liabilities.
Comprehensive Income
Comprehensive income is defined as the change in equity (net assets) of a business enterprise during a period from transactions and other events
and circumstances from non-owner sources, and is comprised of “net income” and “other comprehensive income.”
The Company’s accumulated other comprehensive income (loss) included in total equity is comprised exclusively of changes in the Company’s
currency translation adjustment account (“CTA account”), including applicable income taxes. Total accumulated other comprehensive income
includes $23.0 million of income taxes at January 31, 2013, 2012 and 2011, respectively.
Stock-Based Compensation
The Company records all equity-based incentive grants to employees and non-employee members of the Company’s Board of Directors in “selling,
general and administrative expenses” in the Company’s Consolidated Statement of Income based on their fair values determined on the date of
grant. Stock-based compensation expense, reduced for estimated forfeitures, is recognized on a straight-line basis over the requisite service period
of the award, which is generally the vesting term of the outstanding equity awards. The Company estimates forfeiture rates based on its historical
experience.
Treasury Stock
Treasury stock is accounted for at cost. The reissuance of shares from treasury stock for exercises of equity-based awards or other corporate
purposes is based on the weighted-average purchase price of the shares.
Contingencies
The Company accrues for contingent obligations, including estimated legal costs, when the obligation is probable and the amount is reasonably
estimable. As facts concerning contingencies become known, the Company reassesses its position and makes appropriate adjustments to the
financial statements. Estimates that are particularly sensitive to future changes include those related to tax, legal and other regulatory matters such
as imports and exports, the imposition of international governmental controls,
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