Ingram Micro 2010 Annual Report Download - page 71

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In 2007, the Sao Paulo Municipal Tax Authorities assessed our Brazilian subsidiary a commercial service tax
based upon our sale of software. The assessment for taxes and penalties covers the years 2002 through 2006 and
totaled 55,100 Brazilian reais or approximately $33,100 based upon a January 1, 2011 exchange rate of 1.666
Brazilian reais to the U.S. dollar. Although not included in the original assessment, additional potential liability
arising from this assessment for interest and adjustment for inflation totaled 84,000 Brazilian reais or approximately
$50,400 at January 1, 2011. The authorities could make further tax assessments for the period after 2006, which may
be material. It is our opinion, after consulting with counsel, that our subsidiary has valid defenses against the
assessment of these taxes, penalties, interest, or any additional assessments related to this matter, and we therefore
have not recorded a charge for the assessment as an unfavorable outcome is not probable. After seeking relief in
administrative proceedings, we are now vigorously pursuing judicial action to challenge the current assessment and
any subsequent assessments, which may require us to post collateral or provide a guarantee equal to or greater than
the total amount of the assessment, penalties and interest, adjusted for inflation factors. In addition, we can make no
assurances that we will ultimately be successful in our defense of this matter.
There are other various claims, lawsuits and pending actions against us incidental to our operations. It is the
opinion of management that the ultimate resolution of these matters will not have a material adverse effect on our
consolidated financial position, results of operations or cash flows. However, we can make no assurances that we
will ultimately be successful in our defense of any of these matters.
As is customary in the IT distribution industry, we have arrangements with certain finance companies that
provide inventory-financing facilities for its customers. In conjunction with certain of these arrangements, we have
agreements with the finance companies that would require us 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 us still on hand with the customer at
any point in time, repurchase obligations relating to inventory cannot be reasonably estimated. Repurchases of
inventory by us under these arrangements have been insignificant to date.
We have guarantees to third parties that provide financing to a limited number of our customers. Net sales
under these arrangements accounted for less than one percent of our consolidated net sales for both 2010 and 2009.
The guarantees require us to reimburse the third party for defaults by these customers up to an aggregate of $21,000.
The fair value of these guarantees has been recognized as cost of sales to these customers and is included in other
accrued liabilities.
In December 2008, we renewed our agreement with a third-party provider of IT outsourcing services through
December 2013. The services to be provided include mainframe, major server, desktop and enterprise storage
operations, wide-area and local-area network support and engineering; systems management services; and
worldwide voice/PBX. This agreement is cancelable at our option. We also have an agreement with a leading
global IT outsource service provider. The services provided include certain IT functions related to its application
development functions. This agreement expires in August 2011 and may be terminated by us subject to payment of
termination fees.
We lease the majority of our facilities and certain equipment under noncancelable operating leases. Rental
expense, including obligations related to IT outsourcing services, for the years ended 2010, 2009 and 2008 was
$89,484, $124,831 and $159,667, respectively.
63
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)