Ingram Micro 2006 Annual Report Download - page 79

At December 30, 2006, the Company’s federal tax returns for fiscal years through 2000 have been closed. The
IRS has substantially concluded the examination of the Company’s federal tax returns for fiscal years 2001 to 2003.
As a large corporate filer, the Company expects its federal tax returns to be subject to recurring review by the IRS.
Note 9 — Transactions with Related Parties
In 2006, the Company has loans receivable from certain of its non-executive associates. These loans,
individually ranging up to $100, 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 the Company’s 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 of
the Company, if later. At December 30, 2006 and December 31, 2005, the Company’s employee loans receivable
balance was $100 and $566, respectively.
In July 2005, the Company assumed from AVAD agreements with certain representative companies owned by
the former owners of AVAD, who are now employed with Ingram Micro. These include agreements with two of the
representative companies to sell products on the Company’s behalf for a commission. In fiscal 2006 and 2005, total
sales generated by these companies were approximately $11,100 and $8,200, respectively, resulting in the
Company’s recording of a commission expense of approximately $200 and $187, respectively. In addition, the
Company also assumed the operating lease agreement for a facility in Taunton, Massachusetts owned by the former
owners of AVAD with an annual rental expense of approximately $200 up to January 2024. In fiscal 2006 and 2005,
rent expense under this lease was approximately $200 and $100, respectively.
Note 10 — Commitments and Contingencies
There are various claims, lawsuits and pending actions against the Company incidental to its operations. It is
the opinion of management that the ultimate resolution of these matters will not have a material adverse effect on
the Company’s consolidated financial position, results of operations or cash flows.
As is customary in the IT distribution industry, the Company has arrangements with certain finance companies that
provide inventory-financing facilities for its customers. In conjunction with certain of these arrangements, the Company
has agreements with the finance companies that would require it to repurchase certain inventory, which might be
repossessed, from the customers by the finance companies. Due to various reasons, including among other items, the
lack of information regarding the amount of saleable inventory purchased from the Company still on hand with the
customer at any point in time, the Company’s repurchase obligations relating to inventory cannot be reasonably
estimated. Repurchases of inventory by the Company under these arrangements have been insignificant to date.
In 2003, the Company’s Brazilian subsidiary was assessed for commercial taxes on its purchases of imported
software for the period January to September 2002. The principal amount of the tax assessed for this period is
$5,946. It has been the Company’s opinion, based upon the opinion of outside legal counsel, that the Company has
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 the Company’s opinion, based upon the opinion of outside
legal counsel, that it will likely be required to take a charge of $33,028, which represents $5,946 of tax for the 2002
assessed period and $27,082 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, the Company continues to
believe, based on the opinion of outside legal counsel, that it has valid defenses to the assessment of interest and
penalties, which as of December 30, 2006, potentially amount to approximately $16,800 and $24,800, respectively.
Therefore, the Company currently does not anticipate establishing an additional reserve for interest and penalties.
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INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)