IM-2013.6.29-10Q
Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 _______________________________________
FORM 10-Q
  _______________________________________
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 29, 2013
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number: 1-12203
  _______________________________________
Ingram Micro Inc.
(Exact name of Registrant as specified in its charter)
  _______________________________________
Delaware
 
62-1644402
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
1600 E. St. Andrew Place, Santa Ana, California 92705-4926
(Address, including zip code, of principal executive offices)
(714) 566-1000
(Registrant’s telephone number, including area code)
_______________________________________ 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant had submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   x   No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer
 
x
Accelerated Filer
 
¨
Non-Accelerated Filer
 
¨  (Do not check if a smaller reporting company)
Smaller Reporting Company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
The Registrant had 152,754,822 shares of Class A Common Stock, par value $0.01 per share, outstanding at June 29, 2013.
 

1
Table of Contents

INGRAM MICRO INC.
INDEX
 
Part I. Financial Information
 
 
 
Pages
Item 1.
Financial Statements (Unaudited)
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
Part II.
Other Information
 
Item 1.
Item 1A.
Item 2.
Item 6.
Signatures
Exhibit Index

2
Table of Contents

Part I. Financial Information
Item 1. Financial Statements
INGRAM MICRO INC.
CONSOLIDATED BALANCE SHEET
(In 000s, except par value)
(Unaudited)
 
 
June 29,
2013
 
December 29,
2012
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
726,892

 
$
595,147

Trade accounts receivable (less allowances of $73,764 and $78,034)
4,388,926

 
5,457,299

Inventory
3,698,659

 
3,591,543

Other current assets
506,448

 
522,390

Total current assets
9,320,925

 
10,166,379

Property and equipment, net
474,452

 
481,324

Goodwill
428,401

 
428,401

Intangible assets, net
344,940

 
372,482

Other assets
25,114

 
31,862

Total assets
$
10,593,832

 
$
11,480,448

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
5,315,754

 
$
6,065,159

Accrued expenses
580,772

 
585,404

Short-term debt and current maturities of long-term debt
84,222

 
111,268

Total current liabilities
5,980,748

 
6,761,831

Long-term debt, less current maturities
800,362

 
943,275

Other liabilities
130,839

 
164,089

Total liabilities
6,911,949

 
7,869,195

Commitments and contingencies (Note 12)

 

Stockholders’ equity:
 
 
 
Preferred Stock, $0.01 par value, 25,000 shares authorized; no shares issued and outstanding
—

 
—

Class A Common Stock, $0.01 par value, 500,000 shares authorized; 190,449 and 188,349 shares issued and 152,755 and 150,320 shares outstanding in 2013 and 2012, respectively
1,904

 
1,883

Class B Common Stock, $0.01 par value, 135,000 shares authorized; no shares issued and outstanding
—

 
—

Additional paid-in capital
1,372,715

 
1,361,650

Treasury stock, 37,694 and 38,029 shares in 2013 and 2012, respectively
(642,291
)
 
(648,066
)
Retained earnings
2,870,349

 
2,750,904

Accumulated other comprehensive income
79,206

 
144,882

Total stockholders’ equity
3,681,883

 
3,611,253

Total liabilities and stockholders’ equity
$
10,593,832

 
$
11,480,448

See accompanying notes to these consolidated financial statements.


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Table of Contents

INGRAM MICRO INC.
CONSOLIDATED STATEMENT OF INCOME
(In 000s, except per share data)
(Unaudited)
 
 
Thirteen Weeks Ended
 
Twenty-six Weeks Ended
 
June 29, 2013
 
June 30, 2012
 
June 29, 2013
 
June 30, 2012
Net sales
$
10,308,015

 
$
8,777,895

 
$
20,570,459

 
$
17,413,276

Cost of sales
9,712,261

 
8,325,165

 
19,389,400

 
16,492,989

Gross profit
595,754

 
452,730

 
1,181,059

 
920,287

Operating expenses:
 
 
 
 
 
 
 
Selling, general and administrative
465,325

 
351,400

 
939,403

 
711,424

Amortization of intangible assets
11,997

 
2,706

 
23,762

 
5,631

Reorganization costs
4,636

 
839

 
13,302

 
1,396

 
481,958

 
354,945

 
976,467

 
718,451

Income from operations
113,796

 
97,785

 
204,592

 
201,836

Other expense (income):
 
 
 
 
 
 
 
Interest income
(2,026
)
 
(2,200
)
 
(3,855
)
 
(5,966
)
Interest expense
14,303

 
11,577

 
29,941

 
23,306

Net foreign exchange loss
3,682

 
1,794

 
1,748

 
7,360

Other
4,211

 
3,156

 
7,080

 
5,088

 
20,170

 
14,327

 
34,914

 
29,788

Income before income taxes
93,626

 
83,458

 
169,678

 
172,048

Provision for income taxes
23,940

 
22,184

 
50,233

 
20,801

Net income
$
69,686

 
$
61,274

 
$
119,445

 
$
151,247

Basic earnings per share
$
0.46

 
$
0.40

 
$
0.79

 
$
1.00

Diluted earnings per share
$
0.45

 
$
0.40

 
$
0.77

 
$
0.98

See accompanying notes to these consolidated financial statements.


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Table of Contents

INGRAM MICRO INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(In 000s)
(Unaudited)
 
 
Thirteen Weeks Ended
 
Twenty-six Weeks Ended
 
June 29,
2013
 
June 30,
2012
 
June 29,
2013
 
June 30,
2012
Net income
$
69,686

 
$
61,274

 
$
119,445

 
$
151,247

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Foreign currency translation adjustment
(46,897
)
 
(80,985
)
 
(65,980
)
 
(31,638
)
Net unrealized gain (loss) on foreign currency forward contracts designated as cash flow hedges
(118
)
 
227

 
304

 
69

Other comprehensive income (loss), net of tax
(47,015
)
 
(80,758
)
 
(65,676
)
 
(31,569
)
Comprehensive income (loss)
$
22,671

 
$
(19,484
)
 
$
53,769

 
$
119,678

See accompanying notes to these consolidated financial statements.


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Table of Contents

INGRAM MICRO INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In 000s)
(Unaudited)
 
 
Twenty-six Weeks Ended
 
June 29,
2013
 
June 30,
2012
Cash flows from operating activities:
 
 
 
Net income
$
119,445

 
$
151,247

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
Depreciation and amortization
62,558

 
28,232

Stock-based compensation
13,957

 
14,575

Excess tax benefit from stock-based compensation
(1,135
)
 
(5,241
)
Loss on write-off of property and equipment
2,277

 
—

Gain on sale of land and building
(1,045
)
 
—

Noncash charges for interest and bond discount amortization
1,131

 
922

Deferred income taxes
2,429

 
19,481

Changes in operating assets and liabilities:
 
 
 
Trade accounts receivable
980,723

 
750,408

Inventory
(161,272
)
 
(278,742
)
Other current assets
(20,321
)
 
(29,241
)
Accounts payable
(650,770
)
 
(427,441
)
Change in book overdrafts
(15,552
)
 
(32,067
)
Accrued expenses
(4,410
)
 
(107,830
)
Cash provided by operating activities
328,015

 
84,303

Cash flows from investing activities:
 
 
 
Capital expenditures
(39,457
)
 
(45,505
)
Sales of marketable trading securities, net
1,042

 
1,125

Proceeds from sale of land and building
1,169

 
—

Acquisition earn-out payments
(325
)
 
(338
)
Cash used by investing activities
(37,571
)
 
(44,718
)
Cash flows from financing activities:
 
 
 
Proceeds from exercise of stock options
15,693

 
28,632

Repurchase of Class A Common Stock
—

 
(50,000
)
Excess tax benefit from stock-based compensation
1,135

 
5,241

Net proceeds from (repayments of) revolving credit facilities
(165,263
)
 
74,193

Cash provided (used) by financing activities
(148,435
)
 
58,066

Effect of exchange rate changes on cash and cash equivalents
(10,264
)
 
(7,810
)
Increase in cash and cash equivalents
131,745

 
89,841

Cash and cash equivalents, beginning of period
595,147

 
891,403

Cash and cash equivalents, end of period
$
726,892

 
$
981,244

See accompanying notes to these consolidated financial statements.


6
Table of Contents

INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In 000s, except per share data)
(Unaudited)

Note 1 – Organization and Basis of Presentation
Ingram Micro Inc. and its subsidiaries are primarily engaged in the distribution of information technology (“IT”) products, supply chain services and mobile device lifecycle services worldwide. Ingram Micro Inc. and its subsidiaries operate in North America; Europe; Asia-Pacific, Middle East and Africa; and Latin America. In 2012, we added a reporting segment for mobility which reflects our October 2012 acquisition of Brightpoint, Inc. (“BrightPoint”).
The consolidated financial statements include the accounts of Ingram Micro Inc. and its subsidiaries. Unless the context otherwise requires, the use of the terms “Ingram Micro,” “we,” “us” and “our” in these notes to the consolidated financial statements refers to Ingram Micro Inc. and its subsidiaries. These consolidated financial statements have been prepared by us, without audit, pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). In the opinion of management, the accompanying unaudited consolidated financial statements contain all material adjustments (consisting of only normal, recurring adjustments) necessary to fairly state our consolidated financial position as of June 29, 2013, our consolidated results of operations and comprehensive income for the thirteen and twenty-six weeks ended June 29, 2013 and June 30, 2012 and our consolidated cash flows for the twenty-six weeks ended June 29, 2013 and June 30, 2012. All significant intercompany accounts and transactions have been eliminated in consolidation. As permitted under the applicable rules and regulations of the SEC, these consolidated financial statements do not include all disclosures and footnotes normally included with annual consolidated financial statements and, accordingly, should be read in conjunction with the consolidated financial statements and the notes thereto, included in our Annual Report on Form 10-K filed with the SEC for the year ended December 29, 2012. The consolidated results of operations for the thirteen and twenty-six weeks ended June 29, 2013 may not be indicative of the consolidated results of operations that can be expected for the full year.
Comprehensive Income (Loss)
Comprehensive income (loss) consisted primarily of our net income, foreign currency translation adjustments and unrealized gains and losses from our foreign currency forward contracts designated as cash flow hedges.
Book Overdrafts
Book overdrafts of $399,655 and $415,207 as of June 29, 2013 and December 29, 2012, respectively, represent checks issued on disbursement bank accounts but not yet paid by such banks. These amounts are classified as accounts payable in our consolidated balance sheet. We typically fund these overdrafts through normal collections of funds or transfers from other bank balances at other financial institutions. Under the terms of our facilities with the banks, the respective financial institutions are not legally obligated to honor the book overdraft balances as of June 29, 2013 and December 29, 2012, or any balance on any given date.
Trade Accounts Receivable Factoring Programs
We have three uncommitted factoring programs, one in North America and two in Europe, under which trade accounts receivable of two large customers may be sold, without recourse, to financial institutions. Available capacity under these programs is dependent on the amount of trade accounts receivable already sold to and held by the financial institutions, the level of our trade accounts receivable eligible to be sold into these programs and the financial institutions’ willingness to purchase such receivables. At June 29, 2013 and December 29, 2012, we had a total of $198,209 and $242,626, respectively, of trade accounts receivable sold to and held by financial institutions under these programs. Factoring fees of $630 and $658 incurred for the thirteen weeks ended June 29, 2013 and June 30, 2012, respectively, and $1,162 and $1,962 for the twenty-six weeks ended June 29, 2013 and June 30, 2012, respectively, related to the sale of trade accounts receivable under these facilities are included in “other” in the other expense (income) section of our consolidated statement of income.
 

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Table of Contents
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In 000s, except per share data)


Note 2 – Share Repurchase Program
In October 2010, our Board of Directors authorized a three-year, $400,000 share repurchase program, of which $124,095 is remaining for repurchase at June 29, 2013. Under the program, we may repurchase shares in the open market and through privately negotiated transactions. Our repurchases are funded with available borrowing capacity and cash. The timing and amount of specific repurchase transactions will depend upon market conditions, corporate considerations and applicable legal and regulatory requirements. We account for repurchased shares of common stock as treasury stock. Treasury shares are recorded at cost and are included as a component of stockholders’ equity in our consolidated balance sheet. We have issued shares of common stock out of our cumulative balance of treasury shares. Such shares are issued to certain of our associates upon the exercise of their options or vesting of their equity awards under the Ingram Micro Inc. 2011 Incentive Plan, as amended (see Note 4). We did not repurchase shares during the twenty-six weeks ended June 29, 2013. Our stock issuance activity for the twenty-six weeks ended June 29, 2013 is summarized in the table below: 
 
Shares
 
Weighted
Average Price
Per Share
 
Amount
Cumulative balance at December 29, 2012
38,029

 
$
17.04

 
$
648,066

Issuance of Class A Common Stock
(335
)
 
17.24

 
(5,775
)
Cumulative balance at June 29, 2013
37,694

 
17.04

 
$
642,291


Note 3 – Earnings Per Share
We report a dual presentation of Basic Earnings per Share (“Basic EPS”) and Diluted Earnings per Share (“Diluted EPS”). Basic EPS excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding during the reported period. Diluted EPS uses the treasury stock method to compute the potential dilution that could occur if stock-based awards and other commitments to issue common stock were exercised.
The computation of Basic EPS and Diluted EPS is as follows:
 
 
Thirteen Weeks Ended
 
Twenty-six Weeks Ended
 
June 29, 2013
 
June 30, 2012
 
June 29, 2013
 
June 30, 2012
Net income
$
69,686

 
$
61,274

 
$
119,445

 
$
151,247

Weighted average shares
152,511

 
151,428

 
151,799

 
151,110

Basic EPS
$
0.46

 
$
0.40

 
$
0.79

 
$
1.00

Weighted average shares, including the dilutive effect of stock-based awards (2,353 and 2,592 for the thirteen weeks ended June 29, 2013 and June 30, 2012, respectively, and 2,940 and 3,325 for the twenty-six weeks ended June 29, 2013 and June 30, 2012, respectively)
154,864

 
154,020

 
154,739

 
154,435

Diluted EPS
$
0.45

 
$
0.40

 
$
0.77

 
$
0.98


There were approximately 3,251 and 2,677 stock-based awards for the thirteen weeks ended June 29, 2013 and June 30, 2012, respectively, and 3,184 and 2,161 stock-based awards for the twenty-six weeks ended June 29, 2013 and June 30, 2012, respectively, that were not included in the computation of Diluted EPS because the exercise price was greater than the average market price of the Class A Common Stock during the respective periods, thereby having an antidilutive effect.

Note 4 – Stock-Based Compensation
We currently have a single stock incentive plan, the Ingram Micro Inc. 2011 Incentive Plan, for the granting of equity-based incentive awards including incentive stock options, non-qualified stock options, restricted stock, restricted stock units and stock appreciation rights, among others, to key employees and members of our Board of Directors. During the second quarter of 2013, our stockholders approved an amendment of the Ingram Micro Inc. 2011 Incentive Plan (the “2011 Amended Plan”), which increased the number of shares that we may issue by 12,000. The authorized pool of shares available for grant is a fungible pool.

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Table of Contents
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In 000s, except per share data)


The authorized share limit is reduced by one share for every share subject to a stock option or stock appreciation right granted and 2.37 shares for every share granted after June 8, 2011 (2.29 shares after June 7, 2013) under any award other than an option or stock appreciation right for awards.
We grant time- and/or performance-vested restricted stock and/or restricted stock units, in addition to stock options, to key employees and members of our Board of Directors. The performance measures for vesting of restricted stock and restricted stock units for grants to management for the periods presented are based on earnings growth, return on invested capital, total shareholder return, income from operations as a percent of revenue and income before tax.
Awards granted under the 2011 Amended Plan were as follows:
 
Thirteen Weeks Ended
 
Twenty-six Weeks Ended
 
June 29, 2013
 
June 30, 2012
 
June 29, 2013
 
June 30, 2012
Stock options granted (a)
—

 
—

 
52

 
51

Restricted stock and restricted stock units granted (a)
2,674

 
2,495

 
3,636

 
2,631

 
 
 
 
 
 
 
 
Stock-based compensation expense
$
6,541

 
$
5,129

 
$
13,957

 
$
14,575

Related income tax benefit
$
1,884

 
$
1,330

 
$
4,094

 
$
4,342

 
 
 
 
 
 
 
 
Exercised stock options
293

 
588

 
1,048

 
1,934
Vested restricted stock and/or restricted stock units (b)
181

 
358

 
2,059

 
2,103

 
 
 
 
 
 
 
 
(a)
As of June 29, 2013, approximately 16,055 shares were available for grant under the 2011 Amended Plan, taking into account granted options, time-vested restricted stock units/awards and performance-vested restricted stock units assuming maximum achievement.

(b)
Includes 0 and 343 shares, for the thirteen weeks ended June 29, 2013 and June 30, 2012, respectively, and 1,535 and 1,495 shares, for the twenty-six weeks ended June 29, 2013 and June 30, 2012, respectively, which were issued based on performance-based grants previously approved by the Human Resources Committee of the Board of Directors.
Note 5 – Derivative Financial Instruments
The notional amounts and fair values of derivative instruments in our consolidated balance sheet were as follows: 
 
Notional Amounts (1)
 
Fair Value
 
June 29,
2013
 
December 29,
2012
 
June 29,
2013
 
December 29,
2012
Derivatives designated as hedging instruments recorded in:
 
 
 
 
 
 
 
Other current assets
 
 
 
 
 
 
 
Foreign exchange contracts
$
12,955

 
$
—

 
$
399

 
$
—

Accrued expenses
 
 
 
 
 
 
 
Foreign exchange contracts
7,647

 
—

 
(116
)
 
—

 
20,602

 
—

 
283

 
—

Derivatives not receiving hedge accounting treatment recorded in:
 
 
 
 
 
 
 
Other current assets
 
 
 
 
 
 
 
Foreign exchange contracts
1,134,522

 
817,172

 
20,377

 
2,897

Accrued expenses
 
 
 
 
 
 
 
Foreign exchange contracts
187,538

 
607,836

 
(1,368
)
 
(3,776
)
 
1,322,060

 
1,425,008

 
19,009

 
(879
)
Total
$
1,342,662

 
$
1,425,008

 
$
19,292

 
$
(879
)
 
(1)
Notional amounts represent the gross amount of foreign currency bought or sold at maturity for foreign exchange contracts.

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Table of Contents
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In 000s, except per share data)


The amount recognized in earnings from our derivative instruments not receiving hedge accounting treatment, including ineffectiveness, is recorded in foreign currency exchange gain (loss) as follows and was largely offset by the change in fair value of the underlying hedged assets or liabilities:
 
Thirteen Weeks Ended
 
Twenty-six Weeks Ended
 
June 29, 2013
 
June 30, 2012
 
June 29, 2013
 
June 30, 2012
 
 
 
 
 
 
 
 
Net gain (loss) recognized in earnings
$
10,267

 
$
12,410

 
$
29,361

 
$
(8,108
)
The unrealized gains or losses associated with our derivatives designated as hedging instruments, net of taxes, are reflected in our consolidated statement of comprehensive income (loss) for the thirteen and twenty-six weeks ended June 29, 2013 and June 30, 2012.
Cash Flow and Other Hedges
Our derivatives designated as hedging instruments have consisted primarily of foreign currency forward contracts to hedge certain foreign currency-denominated intercompany management fees. We also use foreign currency 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 6 – 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.
As of June 29, 2013, our assets and liabilities measured at fair value on a recurring basis are categorized in the table below:
 
June 29, 2013
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
Cash equivalents, consisting primarily of money market accounts and short-term certificates of deposit
$
106,896

 
$
106,896

 
$
—

 
$
—

Marketable trading securities (a)
49,344

 
49,344

 
—

 
—

Derivative assets
20,776

 
—

 
20,776

 
—

Total assets at fair value
$
177,016

 
$
156,240

 
$
20,776

 
$
—

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Derivative liabilities
$
1,484

 
$
—

 
$
1,484

 
$
—

Total liabilities at fair value
$
1,484

 
$
—

 
$
1,484

 
$
—

 
 
 
 
 
 
 
 
(a)
Included in other current assets in our consolidated balance sheet.








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Table of Contents
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In 000s, except per share data)


As of December 29, 2012, our assets and liabilities measured at fair value on a recurring basis are categorized in the table below:
 
December 29, 2012
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
Cash equivalents, consisting primarily of money market accounts and short-term certificates of deposit
$
189,381

 
$
189,381

 
$
—

 
$
—

Marketable trading securities (a)
46,938

 
46,938

 
—

 
—

Derivative assets
2,897

 
—

 
2,897

 
—

Total assets at fair value
$
239,216

 
$
236,319

 
$
2,897

 
$
—

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Derivative liabilities
$
3,776

 
$
—

 
$
3,776

 
$
—

Total liabilities at fair value
$
3,776

 
$
—

 
$
3,776

 
$
—

 
(a)
Included in other current assets in our consolidated balance sheet.
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 due in 2022 and 2017 are stated at amortized cost, and their respective fair values were determined based on Level 2 criteria.
As of June 29, 2013, the fair values and carrying values of these notes are shown in the table below:
 
June 29, 2013
 
Fair Value
 
 
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Carrying Value
Liabilities:
 
 
 
 
 
 
 
 
 
Senior unsecured notes, 5.25% due 2017
$
322,000

 
$
—

 
$
322,000

 
$
—

 
$
300,000

Senior unsecured notes, 5.00% due 2022
301,000

 
—

 
301,000

 
—

 
298,365

 
$
623,000

 
$
—

 
$
623,000

 
$
—

 
$
598,365

As of December 29, 2012, the fair values and carrying values of these notes are shown in the table below:
 
December 29, 2012
 
Fair Value
 
 
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Carrying Value
Liabilities:
 
 
 
 
 
 
 
 
 
Senior unsecured notes, 5.25% due 2017
$
326,000

 
$
—

 
$
326,000

 
$
—

 
$
300,000

Senior unsecured notes, 5.00% due 2022
307,000

 
$
—

 
307,000

 
—

 
298,275

 
$
633,000

 
$
—

 
$
633,000

 
$
—

 
$
598,275



11
Table of Contents
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In 000s, except per share data)


Note 7 – Acquisitions, Goodwill and Intangible Assets
On October 15, 2012, we completed the acquisition of BrightPoint, a U.S. publicly traded company and a global leader in providing device lifecycle services to the wireless industry, for cash and the assumption of its debt. The results of operations of BrightPoint are included in our consolidated financial statements from the date of the merger. The consideration paid was $868,192, net of cash acquired, primarily comprised of $9.00 cash per share of BrightPoint’s outstanding common stock (including common stock underlying restricted stock units and shares issued pursuant to restricted stock awards accelerated upon closing of the transaction) and payment of BrightPoint’s outstanding debt of $260,257 as of October 15, 2012.
 
The following table summarizes the preliminary allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed on the closing date of October 15, 2012: 
 
 
Tangible assets (includes trade accounts receivable, inventory, property and equipment and other assets)
$
1,156,075

Goodwill
418,895

Identifiable intangible assets
309,000

Liabilities (includes accounts payable, accrued expenses and other liabilities)
(1,015,778
)
 
$
868,192

We expect to realize operational benefits by leveraging existing channel relationships and utilizing the assembled workforce. We also expect the combined entity to achieve significant savings in corporate and operational overhead costs. We anticipate opportunities for growth through our entry into the global wireless industry, expansion of our geographic reach and customer segment diversity, and the ability to leverage additional products and capabilities. These factors, among others, contributed to a purchase price in excess of the estimated fair value of BrightPoint’s net identifiable assets acquired, and, as a result, we have recorded goodwill in connection with this transaction.
The components of identifiable intangible assets acquired in connection with the BrightPoint acquisition were as follows:
 
 
Fair Value
 
Estimated
Useful Life
Logistics customer relationships
$
237,000

 
10 years
Distribution customer relationships
59,000

 
7 years
Trade name
13,000

 
3 years
Total identifiable intangible assets
$
309,000

 
 
The following represents pro-forma operating results for the thirteen and twenty-six weeks ended June 30, 2012 as if BrightPoint had been included in our consolidated statements of operations as of the first date of fiscal year 2012 and includes business combination accounting effects from our acquisition including amortization of acquired intangible assets and increase in interest expense associated with the issuance of our senior unsecured notes due in 2022 and additional borrowings from our revolving senior unsecured credit facility debt to fund the acquisition.
 
 
Thirteen
Weeks Ended
June 30,
2012
 
Twenty-six
Weeks Ended
June 30,
2012
Net sales
$
10,044,214

 
$
20,049,682

Net income
$
60,980

 
$
151,826

Earnings per share
 
 
 
Basic
$
0.40

 
$
1.00

Diluted
$
0.40

 
$
0.98

The above unaudited pro-forma results have been prepared for informational purposes only and do not purport to represent what the results of operations would have been had the acquisition occurred as of those dates, nor of future results of operations. 

12
Table of Contents
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In 000s, except per share data)


In the first six months of 2013 and 2012, we paid one of the annual earn-out payments related to a prior period acquisition totaling $325 and $338, respectively, which was previously accrued at the time of the acquisition.
There were no changes in the carrying amount of goodwill for the first six months of 2013.
Finite-lived identifiable intangible assets are amortized over their remaining useful lives ranging up to 20 years. The gross and net carrying amounts of finite-lived identifiable intangible assets are as follows:
 
June 29,
2013
 
December 29,
2012
Gross carrying amount of finite-lived intangible assets
$
440,797

 
$
445,385

Net carrying amount of finite-lived intangible assets
$
344,940

 
$
372,482

 

Note 8 – Reorganization and Expense-Reduction Program Costs
2013 Actions
During the first six months of 2013, we began integrating certain BrightPoint operations into Ingram Micro, resulting in headcount reductions and facility exit costs. We also continued to move certain transactions-oriented service and support functions in Europe to our European shared services center and exited a portion of one of our Australian offices in Asia-Pacific. Associated with these actions, we incurred reorganization costs primarily related to employee termination benefits and facility exit costs in one of our offices in Australia.
2012 Actions
In 2012, we implemented headcount reductions primarily in Australia and New Zealand to better align our operating expenses with each country’s lower sales volumes. Additionally, we moved certain transactions-oriented service and support functions to shared service centers in Asia-Pacific and Europe. We closed our in-country Argentina operations in Latin America and will service this market through our export operations in Miami. Associated with these actions, we incurred net reorganization costs related to employee termination benefits.
2011 and Prior Actions
In the second half of 2011, we implemented a cost-reduction program related to our Australian operations in Asia-Pacific primarily to align our level of operating expenses with declines in sales volume as a result of the system-implementation complications and loss of market share in that country. We also implemented headcount reductions in certain operations in North America, Europe and Latin America.
In 2009 and earlier, we incurred costs to integrate past acquisitions, as well as launching various other outsourcing and optimization plans, to improve operating efficiencies and better align our level of operating expenses with the decline in sales volumes resulting from the economic downturn in that period.
While these reorganization actions were completed prior to the periods included herein, future cash outlays are required for future lease payments related to exited facilities.

13
Table of Contents
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In 000s, except per share data)


A summary of the reorganization and expense-reduction program costs incurred in the thirteen weeks ended June 29, 2013 as compared to the thirteen weeks ended June 30, 2012 and twenty-six weeks ended June 29, 2013 compared to the twenty-six weeks ended June 30, 2012, are as follows:
 
 
Reorganization Costs
 
 
Headcount Reduction
 
Employee Termination Benefits
 
Facility Costs
 
Total Reorganization Costs
 
Adjustments to Prior Year Costs
 
Total Costs
 
 
 
 
 
 
 
 
 
 
 
 
 
Thirteen weeks ended June 29, 2013
 
 
 
 
 
 
 
 
 
 
 
 
IT Distribution:
 
 
 
 
 
 
 
 
 
 
 
 
North America
 
 
 
$
790

 
$
—

 
$
790

 
$
—

 
$
790

Europe
 
 
 
232

 
—

 
232

 
(25
)
 
207

Asia-Pacific
 
 
 
38

 
—

 
38

 
—

 
38

Latin America
 
 
 
—

 
—

 
—

 
—

 
—

BrightPoint
 
 
 
1,841

 
1,760

 
3,601

 
—

 
3,601

Total
 
98
 
$
2,901

 
$
1,760

 
$
4,661

 
$
(25
)
 
$
4,636

 
 
 
 
 
 
 
 
 
 
 
 
 
Thirteen weeks ended June 30, 2012
 
 
 
 
 
 
 
 
 
 
 
 
IT Distribution:
 
 
 
 
 
 
 
 
 
 
 
 
North America
 
 
 
$
2

 
$
—

 
$
2

 
$
(155
)
 
$
(153
)
Europe
 
 
 
663

 
—

 
663

 
—

 
663

Asia-Pacific
 
 
 
102

 
—

 
102

 
20

 
122

Latin America
 
 
 
207

 
—

 
207

 
—

 
207

BrightPoint
 
 
 
—

 
—

 
—

 
—

 
—

Total
 
24
 
$
974

 
$
—

 
$
974

 
$
(135
)
 
$
839

 
 
 
 
 
 
 
 
 
 
 
 
 

14
Table of Contents
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In 000s, except per share data)


 
 
Reorganization Costs
 
 
Headcount Reduction
 
Employee Termination Benefits
 
Facility Costs
 
Total Reorganization Costs
 
Adjustments to Prior Year Costs
 
Total Costs
 
 
 
 
 
 
 
 
 
 
 
 
 
Twenty-six weeks ended June 29, 2013
 
 
 
 
 
 
 
 
 
 
 
 
IT Distribution:
 
 
 
 
 
 
 
 
 
 
 
 
North America
 
 
 
$
955

 
$
—

 
$
955

 
$
—

 
$
955

Europe
 
 
 
2,911

 
—

 
2,911

 
(188
)
 
2,723

Asia-Pacific
 
 
 
59

 
3,277

 
3,336

 
(12
)
 
3,324

Latin America
 
 
 
—

 
—

 
—

 
—

 
—

BrightPoint
 
 
 
4,540

 
1,760

 
6,300

 
—

 
6,300

Total
 
218
 
$
8,465

 
$
5,037

 
$
13,502

 
$
(200
)
 
$
13,302

 
 
 
 
 
 
 
 
 
 
 
 
 
Twenty-six weeks ended June 30, 2012
 
 
 
 
 
 
 
 
 
 
 
 
IT Distribution:
 
 
 
 
 
 
 
 
 
 
 
 
North America
 
 
 
$
34

 
$
—

 
$
34

 
$
(155
)
 
$
(121
)
Europe
 
 
 
663

 
—

 
663

 
—

 
663

Asia-Pacific
 
 
 
538

 
—

 
538

 
(115
)
 
423

Latin America
 
 
 
431

 
—

 
431

 
—

 
431

BrightPoint
 
 
 
—

 
—

 
—

 
—

 
—

Total
 
103
 
$
1,666

 
$
—

 
$
1,666

 
$
(270
)
 
$
1,396

 
 
 
 
 
 
 
 
 
 
 
 
 

15
Table of Contents
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In 000s, except per share data)


The remaining liabilities and 2013 activities associated with the aforementioned actions are summarized in the table below:
 
 
Reorganization Liability
 
 
Remaining Liability at December 29, 2012
 
Expenses (Income), Net
 
Amounts Paid
and Charged
Against the
Liability
 
Foreign Currency Translation (b)
 
Remaining Liability at June 29, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
2013 Reorganization actions
 
 
 
 
 
 
 
 
 
 
 
Employee termination benefits
 
$
—

 
$
8,465

 
$
(4,872
)
 
$
5

 
$
3,598

 
Facility Costs
 
—

 
5,037

 
(2,440
)
 
(322
)
 
2,275

 
Subtotal
 
—

 
13,502

 
(7,312
)
 
(317
)
 
5,873

(c) 
 
 
 
 
 
 
 
 
 
 
 
 
2012 Reorganization actions
 
 
 
 
 
 
 
 
 
 
 
Employee termination benefits
 
1,826

 
(200
)
(a) 
(604
)
 
(21
)
 
1,001

(d) 
 
 
 
 
 
 
 
 
 
 
 
 
2011 Reorganization actions
 
 
 
 
 
 
 
 
 
 
 
Employee termination benefits
 
79

 
—

 
(79
)
 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
2009 and prior reorganization actions
 
 
 
 
 
 
 
 
 
 
 
Facility Costs
 
6,214

 
—

 
(1,507
)
 
(219
)
 
4,488

(e) 
 
 
$
8,119

 
$
13,302

 
$
(9,502
)
 
$
(557
)
 
$
11,362

 

(a)
Adjustments reflected in the table above include a reduction of $188 and $12 to reorganization liabilities recorded in prior years in Europe and Asia-Pacific, respectively, for lower than expected employee termination benefits.
(b)
Reflects the net foreign currency impact on the U.S. dollar liability.
(c)
We expect the remaining liabilities to be substantially utilized by the end of 2016.
(d)
We expect the remaining liabilities to be substantially utilized by the end of 2014.
(e)
We expect the remaining liabilities to be fully utilized by the end of 2015.

Note 9 – Debt
The carrying value of our outstanding debt consists of the following:
 
 
June 29,
2013
 
December 29,
2012
Senior unsecured notes, 5.25% due 2017
$
300,000

 
$
300,000

Senior unsecured notes, 5.00% due 2022, net of unamortized discount of $1,635 and $1,725, respectively
298,365

 
298,275

North America revolving trade accounts receivable-backed financing program
201,997

 
345,000

Lines of credit and other debt
84,222

 
111,268

 
884,584

 
1,054,543

Short-term debt and current maturities of long-term debt
(84,222
)
 
(111,268
)
 
$
800,362

 
$
943,275



16
Table of Contents
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In 000s, except per share data)


Note 10 – Income Taxes
Our effective tax rate for the thirteen weeks ended June 29, 2013 was 25.6% compared to 26.6% for the thirteen weeks ended June 30, 2012. For the twenty-six weeks ended June 29, 2013 and June 30, 2012, our effective tax rate was 29.6% and 12.1%, respectively. Under U.S. accounting rules for income taxes, quarterly effective tax rates may vary significantly depending on the actual operating results in the various tax jurisdictions, as well as changes in the valuation allowance related to the expected recovery of deferred tax assets.
The thirteen weeks ended June 29, 2013 included net discrete benefits of approximately $5,766, or 6.2 percentage points of the effective tax rate, while the thirteen weeks ended June 30, 2012 included net discrete benefits of approximately $4,378, or 5.3 percentage points of the effective tax rate, which primarily reflects the release of an unrecognized tax benefit due to the expiration of the applicable statute of limitations in Australia, along with other positive adjustments agreed with the U.S. Internal Revenue Service ("IRS"). The $5,766 net discrete benefits included in the thirteen weeks ended June 29, 2013 is primarily due to a change in estimate of the amount of BrightPoint acquisition costs deductible for tax purposes. A detailed analysis of the acquisition costs incurred by both parties in the deal was completed in the current period, leading to the change in estimate. The remaining year-over-year change in our effective tax rate reflects the change in mix of profit among different tax jurisdictions and losses in certain tax jurisdictions in which we are not able to record a tax benefit.
The twenty-six weeks ended June 29, 2013, included net discrete tax benefits of approximately $6,951, which represents 4.1 percentage points of the effective tax rate, which includes the $5,766 discussed above, as well as $1,185 of net discrete benefits recorded last quarter, primarily due to the release of valuation allowance on U.S. state net operating losses.
The twenty-six weeks ended June 30, 2012 included net discrete tax benefits of approximately $32,910, or 19.1 percentage points of the effective tax rate, which included the net discrete benefits of $4,378 as discussed above, and a benefit of $28,532, which was primarily the result of the write-off of the historical tax basis of the investment we had maintained in one of our Latin American subsidiary holdings companies, realized during the first thirteen weeks of 2012.
Our effective tax rate differed from the U.S. federal statutory rate of 35% during these periods primarily due to the discrete items noted above, as well as the relative mix of earnings or losses within the tax jurisdictions in which we operate, such as: a) earnings in lower-tax jurisdictions for which no U.S. taxes have been provided because such earnings are planned to be reinvested indefinitely outside the United States; and b) changes in the valuation allowance on deferred tax assets.
At June 29, 2013, we had gross unrecognized tax benefits of $38,677 compared to $38,790 at December 29, 2012, representing a net decrease of $113 during the twenty-six weeks ended June 29, 2013. Substantially all of the gross unrecognized tax benefits, if recognized, would impact our effective tax rate in the period of recognition. We recognize interest and penalties related to unrecognized tax benefits in income tax expense. In addition to the gross unrecognized tax benefits identified above, the interest and penalties recorded to date by us totaled $7,988 and $7,889 at June 29, 2013 and December 29, 2012, respectively.
Our future effective tax rate will continue to be affected by changes in the relative mix of taxable income and losses in the tax jurisdictions in which we operate, changes in the valuation of deferred tax assets, or changes in tax laws or interpretations thereof. In addition, our income tax returns are subject to continuous examination by the IRS and other tax authorities. In 2010, the IRS initiated an examination of tax years 2007 to 2009, which was concluded during the second quarter of 2012. As the statute of limitations has been extended to September 30, 2013 for the periods 2008 to 2009, it is possible that the IRS may reopen audits for these periods. During the thirteen weeks ended March 30, 2013, the IRS initiated its examination of tax years 2010 to 2011.
It is possible that within the next twelve months, ongoing tax examinations in the U.S. states and several of our foreign jurisdictions may be resolved, that new tax exams may commence and that other issues may be effectively settled. However, we do not expect our assessment of unrecognized tax benefits to change significantly over that time.



17
Table of Contents
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In 000s, except per share data)


Note 11 – Segment Information
Subsequent to our acquisition of BrightPoint, we have operated predominantly in two industry segments: (1) distribution of IT products and supply chain solutions worldwide and (2) mobile device lifecycle services and logistics solutions. Our IT distribution reporting segments are based on geographic location, and the measure of segment profit is income from operations.
Geographic areas in which we operated our IT distribution reporting segments during 2013 include North America (the United States and Canada), Europe (Austria, Belgium, France, Germany, Hungary, Italy, the Netherlands, Spain, Sweden, Switzerland and the United Kingdom), Asia-Pacific (Australia, the People’s Republic of China including Hong Kong, India, Indonesia, Malaysia, New Zealand, Singapore, Thailand, Lebanon, United Arab Emirates, Turkey, Egypt and South Africa), and Latin America (Brazil, Chile, Colombia, Mexico, Peru, and our Latin American export operations in Miami).
As discussed in Note 7, our acquisition of BrightPoint in October 2012 expanded our product and service offerings to mobile device lifecycle services and logistics solution worldwide and has been added as a reporting segment. BrightPoint has operations in the following geographic areas: the United States, Finland, Germany, Norway, Poland, Portugal, Senegal, Slovakia, South Africa, Spain, Sweden, Switzerland, the United Arab Emirates, the United Kingdom, Australia, Hong Kong, India, Malaysia, New Zealand and Singapore.
We do not allocate stock-based compensation recognized (see Note 4) to our operating units; therefore, we are reporting this as a separate amount.

18
Table of Contents
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In 000s, except per share data)


Financial information by reporting segment is as follows:
 
 
Thirteen Weeks Ended
 
Twenty-six Weeks Ended
 
June 29,
2013
 
June 30,
2012
 
June 29,
2013
 
June 30,
2012
Net sales
 
 
 
 
 
 
 
IT Distribution:
 
 
 
 
 
 
 
North America
$
4,039,064

 
$
3,837,244

 
$
7,906,883

 
$
7,444,191

Europe
2,430,372

 
2,460,141

 
5,099,366

 
5,107,197

Asia-Pacific
2,130,658

 
2,038,112

 
4,325,166

 
3,987,864

Latin America
459,828

 
442,398

 
921,786

 
874,024

BrightPoint
1,248,093

 
—

 
2,317,258

 
—

Total
$
10,308,015

 
$
8,777,895

 
$
20,570,459

 
$
17,413,276

Income from operations
 
 
 
 
 
 
 
IT Distribution:
 
 
 
 
 
 
 
North America
$
65,885

 
$
68,729

 
$
121,460

 
$
138,377

Europe
12,713

 
14,913

 
26,657

 
36,914

Asia-Pacific
19,061

 
14,835

 
32,896

 
29,255

Latin America
9,527

 
4,437

 
15,078

 
11,865

BrightPoint
13,151

 
—

 
22,458

 
—

Stock-based compensation expense
(6,541
)
 
(5,129
)
 
(13,957
)
 
(14,575
)
Total
$
113,796

 
$
97,785

 
$
204,592

 
$
201,836

Capital expenditures
 
 
 
 
 
 
 
IT Distribution:
 
 
 
 
 
 
 
North America
$
19,483

 
$
16,760

 
$
30,509

 
$
32,058

Europe
1,241

 
1,057

 
2,047

 
1,815

Asia-Pacific
1,263

 
2,615

 
2,389

 
11,171

Latin America
546

 
313

 
862

 
461

BrightPoint
1,493

 
—

 
3,650

 
—

Total
$
24,026

 
$
20,745

 
$
39,457

 
$
45,505

Depreciation
 
 
 
 
 
 
 
IT Distribution:
 
 
 
 
 
 
 
North America
$
8,708

 
$
6,351

 
$
15,827

 
$
13,377

Europe
2,512

 
2,530

 
5,048

 
5,121

Asia-Pacific
1,922

 
1,921

 
3,767

 
3,475

Latin America
341

 
305

 
670

 
628

BrightPoint
7,086

 
—

 
13,484

 
—

Total
$
20,569

 
$
11,107

 
$
38,796

 
$
22,601

 


19
Table of Contents
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In 000s, except per share data)


 
Thirteen Weeks Ended
 
Twenty-six Weeks Ended
 
June 29,
2013
 
June 30,
2012
 
June 29,
2013
 
June 30,
2012
Amortization of intangible assets
 
 
 
 
 
 
 
IT Distribution:
 
 
 
 
 
 
 
North America
$
1,786

 
$
1,667

 
$
3,571

 
$
3,357

Europe
493

 
544

 
991

 
1,094

Asia-Pacific
209

 
268

 
421

 
728

Latin America
220

 
227

 
442

 
452

BrightPoint
9,289

 
—

 
18,337

 
—

Total
$
11,997

 
$
2,706

 
$
23,762

 
$
5,631

The integration, transition and other costs included in income from operations by reporting segment is as follows:
 
Thirteen Weeks Ended
 
Twenty-six Weeks Ended
 
June 29,
2013
 
June 30,
2012
 
June 29,
2013
 
June 30,
2012
Integration, transition and other costs (a)
 
 
 
 
 
 
 
IT Distribution:
 
 
 
 
 
 
 
North America
$
572

 
$
4,045

 
$
2,881

 
$
6,545

Europe
155

 
—

 
231

 
—

Asia-Pacific
310

 
43

 
319

 
43

Latin America
—

 
1,923

 
—

 
1,923

BrightPoint
4,893

 
—

 
7,077

 
—

Total
$
5,930

 
$
6,011

 
$
10,508

 
$
8,511

(a) Costs are primarily for legal, consulting and other costs associated with the integration of BrightPoint, acquisitions-related costs and other transition costs incurred for certain executives, charged to SG&A expenses. For the thirteen and twenty-six weeks ended June 30, 2012, it also included an asset impairment associated with our closure of in-country Argentina operations in Latin America, charged to SG&A expenses.
For a segment breakdown of reorganization costs, refer to Note 8.

20
Table of Contents
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In 000s, except per share data)


 
As of
 
June 29,
2013
 
December 29,
2012
Identifiable assets
 
 
 
IT Distribution:
 
 
 
North America
$
3,695,019

 
$
4,103,657

Europe
2,387,341

 
2,883,678

Asia-Pacific
1,862,175

 
1,880,431

Latin America
518,346

 
652,552

BrightPoint
2,130,951

 
1,960,130

Total
$
10,593,832

 
$
11,480,448

Long-lived assets
 
 
 
IT Distribution:
 
 
 
North America
$
339,072

 
$
329,175

Europe
44,676

 
50,498

Asia-Pacific
40,315

 
45,898

Latin America
9,502

 
9,415

BrightPoint
385,827

 
418,820

Total
$
819,392

 
$
853,806

Net sales and long-lived assets for the United States, which is our country of domicile, are as follows:
 
Thirteen Weeks Ended
 
June 29, 2013
 
June 30, 2012
Net sales:
 
 
 
 
 
 
 
United States
$
3,872,694

 
38
%
 
$
3,504,273

 
40
%
Outside of the United States
6,435,321

 
62
%
 
5,273,622

 
60
%
Total
$
10,308,015

 
100
%
 
$
8,777,895

 
100
%
 
 
 
 
 
 
 
 
 
Twenty-six Weeks Ended
 
June 29, 2013
 
June 30, 2012
Net sales:
 
 
 
 
 
 
 
United States
$
7,530,134

 
37
%
 
$
6,642,722

 
38
%
Outside of the United States
13,040,325

 
63
%
 
10,770,554

 
62
%
Total
$
20,570,459

 
100
%
 
$
17,413,276

 
100
%
 
 
 
 
 
 
 
 
 
 
 
 
 
As of
 
 
 
 
 
June 29,
2013
 
December 29,
2012
Long-lived assets:
 
 
 
 
 
 
 
United States
 
$
593,753

 
$
595,949

Outside of the United States
 
225,639

 
257,857

Total
 
 
 
 
$
819,392

 
$
853,806




21
Table of Contents
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In 000s, except per share data)




 
Note 12 – Commitments and Contingencies
Our Brazilian subsidiary has received a number of tax assessments including: (1) a 2005 Federal import tax assessment claiming certain commercial taxes totaling Brazilian Reais 12,714 ($5,779 at June 29, 2013 exchange rates) were due on the import of software acquired from international vendors for the period January through September of 2002; (2) a 2007 Sao Paulo Municipal tax assessment claiming Brazilian Reais 29,111 ($13,232 at June 29, 2013 exchange rates) of service taxes were due on the resale of acquired software covering years 2002 through 2006, plus Brazilian Reais 25,972 ($11,805 at June 29, 2013 exchange rates) of associated penalties; and (3) a 2011 Federal income tax assessment, a portion of which claims statutory penalties totaling Brazilian Reais 15,900 ($7,227 at June 29, 2013 exchange rates) for delays in providing certain electronic files during the audit of tax years 2008 and 2009, which was conducted through the course of 2011. After working with our advisors, we believe the matters raised in the various assessments, other than the three assessments noted above, represent a remote risk of loss.
In addition to the amounts assessed, it is possible that we could also be assessed up to Brazilian Reais 39,934 ($18,152 at June 29, 2013 exchange rates) for penalties and interest on the 2005 assessment and up to Brazilian Reais 132,261 ($60,119 at June 29, 2013 exchange rates) for interest and inflationary adjustments on the 2007 assessment. After working with our advisors on these matters, we believe we have good defenses against each matter and do not believe it is probable that we will suffer a material loss for amounts in the 2007 and the 2011 assessments or any other unassessed amounts noted above. While we will continue to vigorously pursue administrative and, if applicable, judicial action in defending against the 2005 Federal import tax assessment, we continue to maintain a reserve for the full amount assessed at June 29, 2013.
There are various other 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 their 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 factors, 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.


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INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In 000s, except per share data)



Note 13 – New Accounting Standards
In December 2011, the Financial Accounting Standards Board issued a new accounting standard related to enhanced disclosures on offsetting (netting) of assets and liabilities in the financial statements. This standard requires improved information about financial instruments and derivative instruments that are either allowed to be offset in accordance with another accounting standard or subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with another accounting standard. Under this standard, financial statements should disclose the gross amounts of those recognized assets and liabilities and the amounts offset, whether permitted by another accounting standard or subject to master netting arrangement, to determine the net amounts presented in the statement of financial position. This standard was effective for us beginning December 30, 2012 and did not have a material impact on our consolidated financial position.

Note 14 – Subsequent Event
We have been a claimant in a class action proceeding seeking damages from certain manufacturers of LCD flat panel displays.  On July 12, 2013, the federal district judge overseeing the proceeding issued an order approving a plan of distribution to the class claimants.  The distribution entitles us to an award of $29 million, net of all attorney fees and expenses, which is expected to be received and recognized in the third quarter of 2013.  The court has deferred distribution of a portion of the settlement fund.  Accordingly, we may receive up to an additional $7 million from the remaining escrowed settlement fund in the future depending on the extent to which subsequent, approved claims are made on the fund.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Unless otherwise stated, all currency amounts, other than per share information, contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are stated in thousands.
The following discussion contains forward-looking statements, including, but not limited to, management’s expectations of competition; market share; revenues, margin, expenses and other operating results and ratios; economic conditions; vendor terms and conditions; deployment of enterprise systems; pricing strategies and customer terms and conditions; process and efficiency enhancements; cost-savings; cash flows; inventory levels; working capital days; capital expenditures; liquidity; capital requirements; acquisitions and integration costs; operating models; exchange rate fluctuations and related currency gains or losses; resolution of contingencies; seasonality; interest rates and expenses; and rates of return. In evaluating our business, readers should carefully consider the important factors included in Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 29, 2012, as filed with the Securities and Exchange Commission. We disclaim any duty to update any forward-looking statements.

Overview of Our Business
We are the largest wholesale technology distributor and a global leader in IT supply-chain and mobile device lifecycle services worldwide based on revenues. We offer a broad range of IT products and supply chain solutions and help generate demand and create efficiencies for our customers and suppliers around the world. Our acquisition of BrightPoint in October 2012 expanded our product and service offerings to mobile device lifecycle services and logistics solutions worldwide. Our results of operations have been, and will continue to be, directly affected by the conditions in the economy in general. The IT distribution industry in which we operate is characterized by narrow gross profit as a percentage of net sales, or gross margin, and narrow income from operations as a percentage of net sales, or operating margin. Historically, our margins have also been impacted by pressures from price competition and declining average selling prices, as well as changes in vendor terms and conditions, including, but not limited to, variations in vendor rebates and incentives, our ability to return inventory to vendors, and time periods qualifying for price protection. We expect competitive pricing pressures and restrictive vendor terms and conditions to continue in the foreseeable future. In addition, our margins have and may continue to be impacted by our inventory levels, which are based on projections of future demand, product availability, product acceptance and marketability, and market conditions. Any sudden decline in demand and/or rapid technological changes in products could cause us to have a charge for excess and/or obsolete inventory. We continue to monitor and refine our pricing strategies, inventory management processes and vendor program processes to respond and to mitigate the impact of these factors. In addition, we continuously monitor and work to change, as appropriate, certain terms, conditions and credit offered to our customers to reflect those being imposed by our vendors, to recover costs and/or to facilitate sales opportunities. We also strive to improve our profitability through diversification of product offerings, including our presence in adjacent product categories, such as automatic identification/data capture and point-of-sale, or AIDC/POS, enterprise computing and data center, cloud computing, consumer electronics, fee-for-service supply chain offerings and expansion into mobile device lifecycle services and logistics solutions. Our business also requires significant levels of working capital primarily to finance trade accounts receivable and inventory. We have historically relied on, and continue to rely heavily on, trade credit from vendors, available cash, debt and factoring of trade accounts receivable for our working capital needs.
Over the past few years, we have complemented our internal growth initiatives with strategic business acquisitions including BrightPoint as noted previously; Promark Technology Inc. in North America; Eurequat SA, Intertrade A.F. AG, Paradigm Distribution Ltd., Symtech Nordic AS, Computacenter Distribution, Albora Soluciones SL, interAct BVBA and Aretê Sistemas S.A. in Europe; and Aptec Holdings Inc., Vantex Technology Distribution Limited, Value Added Distributors Limited, Asiasoft Hong Kong Limited and the Cantechs Group in Asia-Pacific. These acquisitions have expanded our geographic reach as well as our presence in the value-added distribution of mobile data and AIDC/POS solutions and in the mid-range enterprise market.
We manage our business through continuous cost controls and process and efficiency enhancements. This may also include, from time to time, reorganization actions to further enhance productivity and profitability and could result in the recognition of reorganization costs or impairment of assets.
We are in the process of migrating our operations from our legacy proprietary system that was developed in the late-1980s to SAP in a phased, country-by-country approach over the next several years. We have deployed SAP in several operations globally beginning in 2009. In February 2011, we also deployed the new SAP system in Australia, one of our largest operations. This deployment was somewhat unique in that Australia had operated on a different legacy enterprise system than most of our other operations and had recently implemented Ingram Micro’s warehouse management system, designed for our largest, most sophisticated distribution centers. This deployment revealed connectivity issues with our warehouse management system and certain web-based tools along with order management and customer service functionality that was not optimized. These issues resulted in order delays, decremented margins and reduced sales in 2011 and 2012. We have largely addressed these SAP system issues to better meet our customers’ needs, which has helped improve our Australian operating results during the first six months

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Management's Discussion and Analysis Continued

of 2013. We are continuing to evaluate our SAP deployment schedule and currently do not plan any deployments in large countries in 2013.
We sell finished products purchased from many vendors but generated approximately 14% of our consolidated net sales for the thirteen weeks ended June 29, 2013 from products purchased from Hewlett-Packard Company, and 20%, 11% and 11% from products purchased from Hewlett-Packard Company, Cisco Systems, Inc. and Apple Inc., respectively, for the thirteen weeks ended June 30, 2012.
For the twenty-six weeks ended June 29, 2013, we generated approximately 15% of our consolidated net sales from products purchased from Hewlett-Packard Company, and 20% and 10% from products purchased from Hewlett-Packard Company and Cisco Systems, Inc., respectively, for the twenty-six weeks ended June 30, 2012.
The year-over-year decreases in products purchased from these vendors, as a percentage of net sales, for the periods discussed above reflects the higher mix of products purchased from other vendors as a result of changes in the market in general and our acquisition of BrightPoint.
There were no other vendors or any customers that represented 10% or more of our consolidated net sales in either of the periods presented.
Recent Events
We have been a claimant in a class action proceeding seeking damages from certain manufacturers of LCD flat panel displays.  On July 12, 2013, the federal district judge overseeing the proceeding issued an order approving a plan of distribution to the class claimants.  The distribution entitles us to an award of $29 million, net of all attorney fees and expenses, which is expected to be received and recognized in the third quarter of 2013.  The court has deferred distribution of a portion of the settlement fund.  Accordingly, we may receive up to an additional $7 million from the remaining escrowed settlement fund in the future depending on the extent to which subsequent, approved claims are made on the fund.



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Management's Discussion and Analysis Continued

Results of Operations for the Thirteen Weeks Ended June 29, 2013 Compared to the Thirteen Weeks Ended June 30, 2012
 
Thirteen Weeks Ended
 
Change - Increase (Decrease)
 
June 29, 2013
 
June 30, 2012
 
Amount
 
Percentage
Net sales by reporting segment
 
 
 
 
 
 
 
 
 
 
 
IT Distribution:
 
 
 
 
 
 
 
 
 
 
 
North America
$
4,039,064

 
39
%
 
$
3,837,244

 
44
%
 
$
201,820

 
5
 %
Europe
2,430,372

 
24
%
 
2,460,141

 
28
%
 
(29,769
)
 
(1
)%
Asia-Pacific
2,130,658

 
21
%
 
2,038,112

 
23
%
 
92,546

 
5
 %
Latin America
459,828

 
4
%
 
442,398

 
5
%
 
17,430

 
4
 %
BrightPoint
1,248,093

 
12
%
 
—

 
—

 
1,248,093

 
—

Total
$
10,308,015

 
100
%
 
$
8,777,895

 
100
%
 
$
1,530,120

 
17
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Thirteen Weeks Ended
 
Increase (Decrease)
 
 
 
June 29, 2013
 
June 30, 2012
 
Amount
 

Operating income and operating margin by reporting segment
 
 
 
 
 
 
 
 
 
 
 
IT Distribution:
 
 
 
 
 
 
 
 
 
 
 
North America
$
65,885

 
1.63
%
 
$
68,729

 
1.79
%
 
$
(2,844
)
 


Europe
12,713

 
0.52
%
 
14,913

 
0.61
%
 
(2,200
)
 


Asia-Pacific
19,061

 
0.89
%
 
14,835