Ingram Micro 2008 Annual Report Download - page 51

shared services, customer service, vendor management, technical support and inside sales (excluding field sales
and management functions). This agreement expires in September 2010, but is cancelable at our option subject
to payment of termination fees. In August 2006, we entered into an agreement with a leading global IT
outsource service provider. The services provided to our North America operations include certain IT functions
related to our application development functions. This agreement expires in August 2011 and may be
terminated by us subject to payment of termination fees. Amounts in this table represent future minimum
payments in excess of one year for our IT and business process outsourcing agreements.
(7) At January 3, 2009, our FIN 48 liability, including interest and penalties of $1.9 million, was $13.1 million, the
long-term portion of which amounted to $12.1 million. We are not able to reasonably estimate the timing of
payments of the long-term portion of our FIN 48 liability, or the amount the long-term portion will increase or
decrease over time; therefore, this portion of the liability was excluded in the contractual obligations table
above (see Note 7 to our consolidated financial statements).
In December 2008, we issued a guarantee to a third party that provides financing for limited sales to a certain
customer, which accounted for less than 1% of our North American net sales. The guarantee requires that we
reimburse the third party for defaults by this customer up to an aggregate of $5 million. The fair value of this
guarantee has been recognized as cost of sales to this customer and is included in other accrued liabilities.
In 2007, we issued a guarantee to a third party that provides financing to a limited number of our customers,
which accounted for less than 1% of our North American net sales for both 2008 and 2007. The guarantee requires
that we reimburse the third party for defaults by these customers up to an aggregate of $5 million. The fair value of
this guarantee has been recognized as cost of sales to these customers and is included in other accrued liabilities.
Our employee benefit plans permit eligible employees to make contributions up to certain limits, which are
matched by us at stipulated percentages. Because our commitment under these plans is not a fixed amount, they
have not been included in the contractual obligations table.
Other Matters
See Part I, Item 3 “Legal Proceedings” for discussions of legal matters and contingencies.
Transactions with Related Parties
In July 2005, we assumed from AVAD agreements with certain representative companies owned by the former
owners of AVAD, who subsequently became employed with us. These include agreements with two of the
representative companies to sell products on our behalf for a commission. The related party transactions ended in
2007 by the sale of these companies to unrelated parties in the same year. For fiscal 2007 and 2006, total sales
generated by these companies were approximately $7.7 million and $11.1 million, respectively, resulting in our
recording of commission expense of approximately $0.1 million and $0.2 million in 2007 and 2006, respectively.
New Accounting Standards
Refer to Note 2 of our consolidated financial statements for the discussion of new accounting standards.
Market Risk
We are exposed to the impact of foreign currency fluctuations and interest rate changes due to our international
sales and global funding. In the normal course of business, we employ established policies and procedures to
manage our exposure to fluctuations in the value of foreign currencies using a variety of financial instruments. It is
our policy to utilize financial instruments to reduce risks where internal netting cannot be effectively employed. It is
our policy not to enter into foreign currency or interest rate transactions for speculative purposes.
Our foreign currency risk management objective is to protect our earnings and cash flows resulting from sales,
purchases and other transactions from the impact of exchange rate movements. Foreign exchange risk is managed
by using forward contracts to offset exchange risk associated with receivables and payables. We generally maintain
hedge coverage between minimum and maximum percentages. Cross-currency interest rate swaps are used to hedge
foreign currency denominated principal and interest payments related to intercompany and third-party loans.
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