Ingram Micro 2006 Annual Report Download - page 58

In 2003, our Brazilian subsidiary was assessed for commercial taxes on the purchases of imported software for
the period January to September 2002. The principal amount of the tax assessed for this period is $5.9 million. It has
been our opinion, based upon the opinion of outside legal counsel, that we have valid defenses to the assessment of
these taxes for the 2002 assessed period, as well as any subsequent periods. Accordingly, no reserve has been
established previously for such potential losses. However, proposed changes to the tax law were approved by the
Brazilian legislature on February 6, 2007, and submitted to the president for signature on February 9, 2007. If
enacted in its present form, it is our opinion, based upon the opinion of outside legal counsel, that we will likely be
required to take a charge of approximately $33.0 million, which represents $5.9 million of tax for the 2002 assessed
period and $27.1 million of potential tax assessment for the period from October 2002 to December 2005. The
pending statute provides that no tax is due on such software importation after January 1, 2006. While the tax
authorities may seek to impose interest and penalties in addition to the tax assessed, we continue to believe, based on
the opinion of outside legal counsel, that we have valid defenses to the assessment of interest and penalties, which as
of December 30, 2006, potentially amount to approximately $16.8 million and $24.8 million, respectively.
Therefore, we currently do not anticipate establishing an additional reserve for interest and penalties. All sums
expressed are based upon an exchange rate prevailing on December 30, 2006 of 2.138 Brazilian reais to the
U.S. dollar. We will continue to vigorously pursue administrative and judicial action to challenge the current, and
any subsequent assessments. However, we can make no assurances that we will ultimately be successful in
defending any such assessments, if made.
We received an informal inquiry from the SEC during the third quarter of 2004. The SEC’s focus to date has
been related to certain transactions with McAfee, Inc. (formerly Network Associates, Inc. or NAI) from 1998
through 2000. We also received subpoenas from the U.S. Attorney’s office for the Northern District of California
(“Department of Justice”) in connection with its grand jury investigation of NAI, which seek information
concerning these transactions. On January 4, 2006, McAfee and the SEC made public the terms of a settlement
they had reached with respect to McAfee. We continue to cooperate fully with the SEC and the Department of
Justice in their inquiries. We have engaged in discussions with the SEC toward a possible resolution of matters
concerning these NAI-related transactions. We cannot predict with certainty the outcome of these discussions, nor
their timing, nor can we reasonably estimate the amount of any loss or range of loss that might be incurred as a result
of the resolution of these matters with the SEC and the Department of Justice. Such amounts may be material to our
consolidated results of operations or cash flows.
Transactions with Related Parties
In 2006, we have loans receivable from certain of our non-executive associates. These loans, individually
ranging up to $0.1 million, have interest rates ranging from 4.65% to 4.84% per annum and are payable over periods
up to four years. Loans to executive officers, unless granted prior to their election to such position, were granted and
approved by the Human Resources Committee of our Board of Directors prior to July 30, 2002, the effective date of
the Sarbanes-Oxley Act of 2002. No material modification or renewals to these loans to executive officers have been
made since that date or subsequent to the employee’s election as an executive officer, if later. At December 30, 2006
and December 31, 2005, our employee loans receivable balance was $0.1 million and $0.6 million, respectively.
In July 2005, we assumed from AVAD agreements with certain representative companies owned by the former
owners of AVAD, who are now employed with us. These include agreements with two of the representative
companies to sell products on our behalf for a commission. In fiscal 2006 and 2005, total sales generated by these
companies were approximately $11.1 million and $8.2 million, respectively, resulting in our recording of
commission expense of approximately $0.2 million for both years. In addition, we also assumed an operating
lease agreement for a facility in Taunton, Massachusetts owned by the former owners of AVAD with an annual
rental expense of approximately $0.2 million up to January 2024. In fiscal 2006 and 2005, rent expense under this
lease was approximately $0.2 million and $0.1 million, respectively.
New Accounting Standards
Refer to Note 2 to consolidated financial statements for the discussion of new accounting standards.
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