Ingram Micro 1999 Annual Report Download - page 38

3366
Ingram Micro
Annual Report
software developed or obtained for internal use on a straight-line basis over the estimated life of the software.The impact of
adoption was not material to the Company’s consolidated financial statements.
Maintenance, repairs and minor renewals are charged to expense as incurred. Additions, major renewals and betterments to
property and equipment are capitalized.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in an acquisition accounted
for using the purchase method, and is amortized on a straight-line basis over periods ranging from five to 30 years.Accumulated
amortization was $54,521 at January 1, 2000, and $31,621 at January 2, 1999.Amortization expense totaled $22,900, $10,269,
and $4,955, for 1999, 1998, and 1997, respectively.The Company assesses the realizability of goodwill consistent with its policy
for long-lived assets.
Investments in Available-for-Sale Securities
The Company classifies its existing marketable equity securities as available-for-sale in accordance with the provisions of
Statement of Financial Accounting Standards No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” These
securities are carried at fair market value, with unrealized gains and losses reported in stockholders’ equity as a component of
other comprehensive income (loss). Gains or losses on securities sold are based on the specific identification method.
In December 1998, the Company purchased 990,800 shares of common stock of SOFTBANK Corp. (“Softbank”), Japan’s
largest distributor of software, peripherals and networking products, for approximately $50,262.These securities had a gross
unrealized holding gain of $6,666 as of January 2, 1999. No tax provision was provided in 1998 because of tax planning strategies
that the Company believes will reduce the tax consequences to an immaterial amount.
During December 1999, the Company sold 346,800 shares of Softbank common stock, or approximately 35% of its original
investment, for approximately $230,109 resulting in a pre-tax gain of approximately $201,318, net of related expenses of approxi-
mately $18,609.As a result of the Company’s reconsideration of certain tax planning strategies, the Company provided for
deferred taxes totaling approximately $76,098 associated with this sale of stock.The Company used the net proceeds from the
sale to repay existing indebtedness.As of January 1, 2000, the Company had an unrealized holding gain on the remaining 644,000
shares of Softbank common stock totaling $356,936, net of $227,248 in deferred income taxes.
In connection with the December 1999 sale of Softbank common stock, the Company issued warrants to Softbank for the
purchase of 1,500,000 shares of the Company’s Class A Common Stock with an exercise price of $13.25 per share, which approxi-
mated the market price of the Company’s common stock on the warrant issuance date.The warrants are exercisable immediately
and have a 5-year term. The estimated fair value of these warrants upon issuance was approximately $11,264 and was determined
using the Black-Scholes option-pricing model using the following assumptions:
Risk-free interest rate 6.27%
Term of warrant 5 years
Expected stock volatility 55.4%
The estimated fair value of the warrants has been included in other expenses in the Statement of Income for fiscal 1999.
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