Ingram Micro 2008 Annual Report Download - page 30

ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our corporate headquarters is located in Santa Ana, California. We support our global operations through an
extensive sales and administrative office and distribution network throughout North America, EMEA, Latin
America, and Asia-Pacific. As of January 3, 2009 we operated 108 distribution centers worldwide.
As of January 3, 2009, we leased substantially all our facilities on varying terms. We do not anticipate any
material difficulties with the renewal of any of our leases when they expire or in securing replacement facilities on
commercially reasonable terms. We also own several facilities, the most significant of which is part of our office/
distribution facilities in Straubing, Germany.
ITEM 3. LEGAL PROCEEDINGS
In 2003, our 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 was 12.7 million
Brazilian reais. Prior to February 28, 2007, and after consultation with counsel, it had been our opinion that we had
valid defenses to the payment of these taxes and it was not probable that any amounts would be due for the 2002
assessed period, as well as any subsequent periods. Accordingly, no reserve had been established previously for
such potential losses. However, on February 28, 2007 changes to the Brazilian tax law were enacted. As a result of
these changes, and after further consultation with counsel, it is now our opinion that we have a probable risk of loss
and may be required to pay all or some of these taxes. Accordingly, in the first quarter of 2007, we recorded a charge
to cost of sales of $33.8 million, consisting of $6.1 million for commercial taxes assessed for the period January
2002 to September 2002, and $27.7 million for such taxes that could be assessed for the period October 2002 to
December 2005. The subject legislation provides that such taxes are not assessable on software imports after
January 1, 2006. The sums expressed are based on an exchange rate of 2.092 Brazilian reais to the U.S. dollar which
was applicable when the charge was recorded. In the fourth quarters of 2008 and 2007, we released a portion of the
commercial tax reserve recorded in the first quarter of 2007 amounting to $8.2 million and $3.6 million,
respectively (19.6 million and 6.5 million Brazilian reais at a December 2008 exchange rate of 2.330 and
December 2007 exchange rate of 1.771 Brazilian reais to the U.S. dollar, respectively). These partial reserve
releases were related to the unassessed periods from January through December 2003 and October through
December 2002, respectively, for which it is management’s opinion, after consultation with counsel, that the statute
of limitations for an assessment from Brazilian tax authorities has expired.
While the tax authorities may seek to impose interest and penalties in addition to the tax as discussed above, we
continue to believe that we have valid defenses to the assessment of interest and penalties, which as of January 3,
2009 potentially amount to approximately $13.3 million and $14.6 million, respectively, based on the exchange rate
prevailing on that date of 2.330 Brazilian reais to the U.S. dollar. Therefore, we currently do not anticipate
establishing an additional reserve for interest and penalties. 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.
In December 2007, the Sao Paulo Municipal Tax Authorities assessed our Brazilian subsidiary a commercial
service tax based upon our sales and licensing of software. The assessment covers the years 2002 through 2006 and
totaled 57.2 million Brazilian reais ($24.6 million 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 couldmake adjustments to the initial assessment including assessments forthe period after
2006, as well as additional penalties and interest, which may be material. It is our opinion, after consulting with
counsel, that our subsidiary has valid defenses against the assessment of these taxes and penalties, or any subsequent
adjustments or additional assessments related to this matter. Although we intend to vigorously pursue adminis-
trative and judicial action to challenge the current assessment and any subsequent adjustments or assessments, we
can make no assurances that we will ultimately be successful in our defense of this matter.
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