Ingram Micro 2011 Annual Report Download - page 52

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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.
The following table sets forth the estimated maximum potential one-day loss in fair value, calculated using
the VaR model. We believe that the hypothetical loss in fair value of our derivatives would be offset by gains in
the value of the underlying transactions being hedged.
Interest Rate
Sensitive Financial
Instruments
Currency Sensitive
Financial
Instruments
Combined
Portfolio
VaR as of December 31, 2011 ................. $9,272 $105 $7,168
VaR as of January 1, 2011 .................... 8,898 105 6,632
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information concerning quantitative and qualitative disclosures about market risk is included under the
captions “Market Risk” and “Market Risk Management” in “Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations” in this Annual Report on Form 10-K.
42