Ingram Micro 1999 Annual Report Download - page 39

3377
Ingram Micro
Annual Report
In January 2000, the Company sold an additional 148,600 shares or approximately 15% of its original holdings in Softbank
common stock for approximately $118,900 in net cash proceeds.The gain, net of expenses of $2,800, realized in the first quarter
of fiscal year 2000 related to this sale totaled approximately $69,000, net of deferred income taxes of approximately $42,000.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of
trade accounts receivable and derivative financial instruments. Credit risk with respect to trade accounts receivable is limited due
to the large number of customers and their dispersion across geographic areas.The Company sells its products primarily in the
United States, Europe, Canada, Latin America and Asia Pacific.The Company performs ongoing credit evaluations of its customers’
financial conditions, obtains credit insurance in certain locations and requires collateral in certain circumstances.The Company
maintains an allowance for potential credit losses.
Derivative Financial Instruments
The Company operates internationally with distribution facilities in various locations around the world.The Company reduces
its exposure to fluctuations in interest rates and foreign exchange rates by creating offsetting positions through the use of derivative
financial instruments.The market risk related to the foreign exchange agreements is offset by changes in the valuation of the
underlying items being hedged.The majority of the Company’s derivative financial instruments have terms of 90 days or less.The
Company currently does not use derivative financial instruments for trading or speculative purposes, nor is the Company a party
to leveraged derivatives.
Foreign exchange risk is managed by using forward and option contracts to hedge receivables and payables.Written foreign
currency options are used to mitigate currency risk in conjunction with purchased options. Currency interest rate swaps and for-
ward rate agreements are used to hedge foreign currency denominated principal and interest payments related to intercompany
and third-party loans.
Derivative financial instruments are accounted for on an accrual basis. Income and expense are recorded in the same category
as that arising from the related asset or liability being hedged. Gains and losses resulting from effective hedges of existing assets,
liabilities or firm commitments are deferred and recognized when the offsetting gains and losses are recognized on the related
hedged items. Gains or losses on written foreign currency options are adjusted to market value at the end of each accounting
period and have not been material to date.
The notional amount of forward exchange contracts and options is the amount of foreign currency bought or sold at maturity.
The notional amount of currency interest rate swaps and forward rate agreements are the underlying principal and currency
amounts used in determining the interest payments exchanged over the life of the swap. Notional amounts are indicative of the
extent of the Company’s involvement in the various types and uses of derivative financial instruments and are not a measure of
the Company’s exposure to credit or market risks through its use of derivatives.The estimated fair value of derivative financial
instruments represents the amount required to enter into like offsetting contracts with similar remaining maturities based on
quoted market prices.
Credit exposure for derivative financial instruments is limited to the amounts, if any, by which the counterparties’ obligations
under the contracts exceed the obligations of the Company to the counterparties. Potential credit losses are minimized through
careful evaluation of counterparty credit standing, selection of counterparties from a limited group of high-quality institutions
and other contract provisions.