Ingram Micro 2008 Annual Report Download - page 76

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January 3, 2009 potentially amount to approximately $13,300 and $14,600, respectively, based on the exchange rate
prevailing on that date of 2.330 Brazilian reais to the U.S. dollar. Therefore, the Company currently does not
anticipate establishing an additional reserve for interest and penalties. The Company will continue to vigorously
pursue administrative and judicial action to challenge the current, and any subsequent assessments. However, the
Company can make no assurances that it will ultimately be successful in defending any such assessments, if made.
In December 2007, the Sao Paulo Municipal Tax Authorities assessed the Company’s Brazilian subsidiary a
commercial service tax based upon its sales and licensing of software. The assessment covers the years 2002
through 2006 and totaled 57.2 million Brazilian reais ($24,600 based upon a January 3, 2009 exchange rate of 2.330
Brazilian reais to the U.S. dollar). The assessment included taxes claimed to be due as well as penalties for the years
in question. The authorities could make adjustments to the initial assessment including assessments for the period
after 2006, as well as additional penalties and interest, which may be material. It is management’s opinion, after
consulting with counsel, that the Company’s subsidiary has valid defenses against the assessment of these taxes and
penalties, or any subsequent adjustments or additional assessments related to this matter. Although the Company
intends to vigorously pursue administrative and judicial action to challenge the current assessment and any
subsequent adjustments or assessments, the Company can make no assurances that it will ultimately be successful in
its defense of this matter.
In May 2007, the Companyreceived a “Wells Notice” from the SEC, which indicated that the SEC staffintends
to recommend an administrative proceeding against the Company seeking disgorgement and prejudgment interest,
though no dollar amounts were specified in the notice. The SEC staff contends that the Company failed to maintain
adequate books and records relating to certain of its transactions with McAfee Inc. (formerly Network Associates,
Inc.), and was a cause of McAfee’s own securities-laws violations relating to the filing of reports and maintenance
of books and records. During the second quarter of 2007, the Company recorded a reserve of $15,000 for the current
best estimate of the probable loss associated with this matter based on discussions with the SEC staff concerning the
issues raised in the Wells Notice. No resolution with the SEC has been reached at this point, however, and there can
be no assurance that such discussions will result in a resolution of these issues. When the matter is resolved, the final
disposition and the related cash payment may exceed the current accrual for the best estimate of probable loss. At
this time, it is also not possible to accurately predict the timing of a resolution. The Company has responded to the
Wells Notice and continues to cooperate fully with the SEC on this matter, which was first disclosed during the third
quarter of 2004.
There are other 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 December 2008, the Company issued a guarantee to a third party that provides financing for limited sales to
a certain customer of the Company, which accounted for less than 1% of the Company’s North American net sales.
The guarantee requires the Company to reimburse the third party for defaults by this customer up to an aggregate of
$5,000. The fair value of this guarantee has been recognized as cost of sales to this customer and is included in other
accrued liabilities.
66
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)