Ingram Micro 2010 Annual Report Download - page 70

forward contracts that are not designated as hedges primarily to manage currency risk associated with foreign
currency-denominated trade accounts receivable, accounts payable and intercompany loans.
Note 9 — Fair Value Measurements
Our assets and liabilities carried at fair value are classified and disclosed in one of the following three
categories: Level 1 — quoted market prices in active markets for identical assets and liabilities; Level 2 —
observable market-based inputs or unobservable inputs that are corroborated by market data; and Level 3 —
unobservable inputs that are not corroborated by market data.
At January 1, 2011 and January 2, 2010, our assets and liabilities measured at fair value on a recurring basis
included cash equivalents, consisting primarily of money market accounts and short-term certificates of deposit, of
$532,985 and $168,157, respectively, and marketable trading securities (included in other current assets in our
consolidated balance sheet) of $44,401 and $40,230, respectively, determined based on Level 1 criteria, as defined
above, and derivative assets of $585 and $1,678, respectively, and derivative liabilities of $25,758 and $28,712,
respectively, determined based on Level 2 criteria. The change in the fair value of derivative instruments was a net
unrealized gain (loss) of $1,861 and ($24,294) for 2010 and 2009, respectively, which is essentially offset by the
change in fair value of the underlying hedged assets or liabilities. The fair value of the cash equivalents
approximated cost and the gain or loss on the marketable trading securities was recognized in the consolidated
statement of income to reflect these investments at fair value.
Our senior unsecured notes issued in August 2010 (see Note 6) had a fair value of approximately $302,000 at
January 1, 2011, determined based on Level 1 criteria.
Note 10 — Commitments and Contingencies
Our Brazilian subsidiary has been 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 12,700 Brazilian
reais. Although we believe we have valid defenses to the payment of the assessed taxes, as well as any amounts due
for the unassessed period from October 2002 to December 2005, after consultation with counsel and consideration
of legislation enacted in February 2007, it is our opinion that it is probable that we may be required to pay all or
some of these taxes. Accordingly, we recorded a net charge to cost of sales of $30,134 in 2007 to establish a liability
for these taxes assessable through December 2005. The legislation enacted in February 2007 provides that such
taxes are not assessable on software imports after January 1, 2006. In the fourth quarters of 2010, 2009 and 2008, we
released a portion of this commercial tax reserve amounting to $9,112, $9,758 and $8,224 respectively, (15,500,
17,100 and 19,600 Brazilian reais at a December 2010 exchange rate of 1.666, December 2009 exchange rate of
1.741 and December 2008 exchange rate of 2.330 Brazilian reais to the U.S. dollar, respectively). These partial
reserve releases were related to the unassessed periods from January through December 2005, January through
December 2004 and January through December 2003, respectively, for which it is our opinion, after consultation
with counsel, that the statute of limitations for an assessment from Brazilian tax authorities has expired. The
remaining amount of liability at January 1, 2011 and January 2, 2010 was 12,700 Brazilian reais and 28,200
Brazilian reais, respectively, (approximately $7,600 and $16,200 at January 1, 2011 and January 2, 2010,
respectively, based on the exchange rate prevailing on those dates of 1.666 and 1.741 Brazilian reais, respectively,
to the U.S. dollar).
While the tax authorities may seek to impose interest and penalties in addition to the tax as discussed above,
which potentially aggregate to approximately $15,000 as of January 1, 2011 based on the exchange rate prevailing
on that date of 1.666 Brazilian reais to the U.S. dollar, we continue to believe that we have valid defenses to the
assessment of interest and penalties and that payment is not probable. 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.
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INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)