Ingram Micro 2008 Annual Report Download - page 38

•Accounts Receivable — We provide allowances for doubtful accounts on our accounts receivable for
estimated losses resulting from the inability of our customers to make required payments. Changes in the
financial condition of our customers or other unanticipated events, which may affect their ability to make
payments, could result in charges for additional allowances exceeding our expectations. Our estimates are
influenced by the following considerations: the large number of customers and their dispersion across wide
geographic areas; the fact that no single customer accounts for 10% or more of our net sales; a continuing
credit evaluation of our customers’ financial condition; aging of receivables, individually and in the
aggregate; credit insurance coverage; the value and adequacy of collateral received from our customers in
certain circumstances; our historical loss experience; and increases in credit risk resulting from an economic
downturn and resulting decline in capital availability to customers.
•Vendor Programs — We receive funds from vendors for price protection, product rebates, marketing/
promotion, infrastructure reimbursement and meet-competition programs, which are recorded as adjust-
ments 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 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.
•Inventories — 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 inventories. On an ongoing basis, we review for estimated excess or obsolete
inventories and write down our inventories to their 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 the following consider-
ations: protection from loss invalue of inventory under our vendor agreements; our ability to return to vendors
only a certain percentage of our purchases as contractually stipulated; aging of inventories; a sudden decline in
demand due to an economic downturn; and rapid product improvements and technological changes.
•Goodwill, Intangible Assets and Other Long-Lived Assets — We apply the provisions of Statement of
Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” or FAS 142, in our
evaluation of goodwill and other intangible assets. FAS 142 eliminates the requirement to amortize
goodwill, but requires that goodwill be reviewed at least annually for potential impairment.
In the fourth quarter of 2008, consistent with the drastic decline in the capital markets in general, we
experienced a similar decline in the market value of our stock. As a result, our market capitalization was
significantly lower than our book value. Our reporting units under FAS 142 are our regional operating
segments. While the Latin America region does not have any goodwill, we conducted goodwill impairment
tests in each of our other regional reporting units during the fourth quarter of 2008, which coincides with the
timing of our normal annual impairment test. In performing this test, we, among other things, consulted an
independent valuation advisor.
In accordance with FAS 142, we used a two step process to test for goodwill impairment. The first step is to
determine if there is an indication of impairment by comparing the estimated fair value of each reporting unit
to its carrying value including existing goodwill. Goodwill is considered impaired if the carrying value of a
reporting unit exceeds the estimated fair value. We utilized a combination of income and market approaches
to estimate the fair value of our reporting units in the first step.
The income approach utilizes estimates of discounted cash flows of the reporting units, which requires
assumptions of, among other things, the reporting units’ expected long-term revenue trends, as well as
estimates of profitability, changes in working capital and long-term discount rates, all of which require
significant judgment. The income approach also requires the use of appropriate discount rates that take into
account the current risks in the capital markets. The market approach evaluates comparative market
multiples applied to our reporting units’ businesses to yield a second assumed value of each reporting unit.
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