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UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
January 3, 2009
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission File Number: 1-12203
Ingram Micro Inc.
(Exact name of Registrant as
Specified in its Charter)
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Delaware
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62-1644402
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(State or Other Jurisdiction
of
Incorporation or Organization)
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(I.R.S. Employer
Identification No.)
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1600 E. ST. ANDREW PLACE, SANTA ANA, CALIFORNIA
92705
(Address, including Zip Code, of
Principal Executive Offices)
(714) 566-1000
(Registrants telephone
number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE
ACT:
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Title of Each Class:
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Name of Each Exchange on Which Registered:
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Class A Common Stock,
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New York Stock Exchange
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Par Value $.01 Per Share
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE
ACT:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
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 þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.101 of this chapter) is not contained herein,
and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
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 the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
Accelerated
Filer þ
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Accelerated
Filer o
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Non-Accelerated Filer
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Smaller
Reporting
Company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No
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The aggregate market value of the voting stock held by
non-affiliates of the registrant as of the last business day of
the Registrants most recently completed second fiscal
quarter, at June 28, 2008, was $2,639,433.79 based on the
closing sale price on such date of $17.81 per share.
The registrant had 161,524,718 shares of Class A
Common Stock, par value $0.01 per share, outstanding at
February 2, 2009.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Proxy Statement for the registrants Annual
Meeting of Shareholders to be held June 3, 2009 are
incorporated by reference into Part III of this Annual
Report on
Form 10-K.
TABLE
OF CONTENTS
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PART II
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PART III
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PART IV
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CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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CERTIFICATION BY PRINCIPAL EXECUTIVE OFFICER (SOX 302)
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CERTIFICATION BY PRINCIPAL FINANCIAL OFFICER (SOX 302)
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CERTIFICATION BY PRINCIPAL EXECUTIVE OFFICER (SOX 906)
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CERTIFICATION BY PRINCIPAL FINANCIAL OFFICER (SOX 906)
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Exhibit 10.6 |
Exhibit 10.9 |
EX-21.1 |
EX-23.1 |
EX-31.1 |
EX-31.2 |
EX-32.1 |
EX-32.2 |
ii
PART I
The following discussion includes forward-looking statements,
including but not limited to, managements expectations of
competition; revenues, margin, expenses and other operating
results or ratios; operating efficiencies; economic conditions;
cost savings; capital expenditures; liquidity; capital
requirements; acquisitions and integration costs; operating
models; exchange rate fluctuations and rates of return. In
evaluating our business, readers should carefully consider the
important factors discussed under Risk Factors. We
disclaim any duty to update any forward-looking statements.
Introduction
Ingram Micro, a Fortune 100 company, is the largest global
information technology (IT) wholesale distributor by
net sales, providing sales, marketing, and logistics services
for the IT industry worldwide. Ingram Micro provides a vital
link in the IT supply chain by generating demand and developing
markets for our technology partners. While we remain focused on
continuing to build our IT distribution business, we also are
developing an increasing presence in adjacent technology
categories, such as automatic identification and data capture
(AIDC); point-of-sale (POS); managed,
professional and warranty maintenance services; and consumer
electronics (CE) to broaden our product lines and
market presence. We create value in the market by extending the
reach of our technology partners, capturing market share for
resellers and suppliers, creating innovative solutions comprised
of both technology products and services, offering credit, and
providing efficient fulfillment of IT products and services.
With a broad range of products and an array of services, we
create operating efficiencies for our partners around the world.
History
We began business in 1979, operating as Micro D Inc., a
California corporation. Through a series of acquisitions,
mergers and organic growth, Ingram Micros global footprint
and product breadth have expanded and strengthened in North
America; Europe, Middle East and Africa (EMEA);
Asia-Pacific; and Latin America. In 2004, we acquired Techpac
Holding Limited (Tech Pacific) to significantly
boost our market share in
Asia-Pacific.
From 2004 through 2007 we acquired several companies to build
our presence in AIDC/POS, CE and network security products and
solutions. During 2008, we invested further in the AIDC/POS
market with three European acquisitions (Paradigm Distribution,
Eurequat SA and Intertrade A.F. AG) and the acquisition of the
distribution business of the Cantechs Group, a market leader in
China.
Industry
The worldwide information technology products and services
distribution industry generally consists of two types of
business: traditional distribution and fee-based supply chain
services. Within the traditional distribution model, the
distributor buys, holds title to, and sells products
and/or
services to resellers who, in turn, typically sell directly to
end-users, or other resellers. While some vendors have elected
to sell directly to resellers or end-users for particular
customer and product segments, we believe that vendors continue
to embrace traditional distributors that have a global presence
and proven ability to manage multiple products and resellers
worldwide, provide access to fragmented markets, and deliver
products to market in an efficient manner. Resellers in the
traditional distribution model are able to build efficiencies
and reduce costs by depending on distributors for a number of
services, including product availability, marketing, credit,
technical support, and inventory management, which includes
direct shipment to end-users and, in some cases, provides
end-users with distributors inventory availability. During
periods of constrained credit, distributors with strong balance
sheets and ample credit capacity are especially valued by
suppliers. Those distributors that work with resellers to offer
enhanced value-added solutions and services customized to the
needs of their specific end-user customer base are better able
to succeed in this environment. As the worlds leading
broad-based distributor, we also offer to both suppliers and
resellers fee-based supply chain services, encompassing the
end-to-end functions of the supply chain. We charge fees to
suppliers for providing logistics, fulfillment, and marketing
services, as well as third-party products. Likewise, we charge
fees to retailers and Internet resellers seeking fulfillment
services, inventory management, reverse logistics, and other
supply chain
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services. We will continue to evolve our business model to meet
the changing requirements of our customers (both suppliers and
resellers).
Company
Strengths
Despite the global economic downturn that is dampening demand in
each of the companys regions, we believe that the current
technology industry generally favors large, financially-sound
distributors that have broad product portfolios, economies of
scale, strong business partner relationships and wide geographic
reach. Two-tier distribution continues to be an integral element
of the go-to-market strategy for IT suppliers bringing products
to market, particularly in an environment in which suppliers are
compelled to streamline processes and eliminate costs. We
deliver value to our partners by making reseller customers more
valuable to their end-user customers and making suppliers more
profitable. As such, our strengths position us well to meet the
needs of our reseller and vendor partners worldwide in the
current environment and create a firm foundation for future
growth as the economy recovers. Our solid financial position
helps us to better manage the challenges presented by economic
instability and volatility. We have identified several catalysts
for growth in our IT distribution business and in new markets.
We believe that the following strengths enable us to further
enhance our leadership position in the IT distribution industry
and in adjacent technology product categories.
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Strong Working Capital Management and a Solid Financial
Position. We have consistently demonstrated
strong working capital management regardless of economic
conditions. In particular, we have maintained a strong focus on
optimizing our investment in inventory, while preserving
customer fill rates and service levels. We have maintained our
inventory days on hand at a stable range for the last seven
years as a result of our focused and sustainable initiatives
towards minimizing excess and obsolete goods while improving our
purchasing processes and product flow. Furthermore, we continue
to manage our accounts receivable through timely collections,
credit limit setting, customer terms and process efficiencies to
minimize our working capital requirements. Our conservative
stance on capital management, as well as our diversified
portfolio of capital resources, improves our position in the
tighter credit markets. Our financial strength enables us to
provide valuable credit to our customers, employing a
disciplined approach to account management and credit
worthiness. We also believe that we are well-positioned to
support our growth initiatives in our IT distribution business
and invest in incremental profitable growth opportunities.
Finally, we believe our solid financial position provides us
with a competitive advantage as a reliable, long-term business
partner for our supplier and reseller partners.
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Continuous Focus on Optimizing
Productivity. We continue to seek ways to
improve our processes and streamline our business model, while
refining our cost structure to respond to changes in market
demand. During 2008, we streamlined our European operations and
made targeted headcount reductions in North America, EMEA
and Asia-Pacific. We continue to incorporate cost-savings
measures in all business processes. We leverage our IT systems
and warehouse locations to support custom shipment requirements,
and by optimizing delivery methodologies, we deliver faster,
while reducing shipping costs. We remain focused on ensuring
that our catalog includes the products most desired by our
customers, optimizing inventory management, realizing higher
margin opportunities, and developing merchandising and pricing
strategies that produce enhanced business results. In order to
fully leverage our global operation, we make continuous
investments in our IT infrastructure and streamline and
standardize business processes to drive efficiency and provide
best-in-class
quality in our processes and systems throughout the world.
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Business Diversification. Our ability
to execute on new initiatives and adapt to new business models
provides a competitive advantage by allowing us to overcome the
risks, volatility and demand fluctuations in a single market,
vendor or product segment.
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Products. Based on publicly available
information, we believe we offer the largest breadth of products
in the IT industry. Our broad base of products allows us to
better serve our customers, as well as mitigate risk. Our broad
line card, or catalog of product offerings, makes us less
vulnerable to market dynamics or actions by any one vendor or
segment, or volatility in market demand in specific product
lines. We continuously focus on refreshing our business with
new, high-potential products and services. We are focused on
moving deeper into new adjacent product categories and
globalizing our efforts. Recent
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acquisitions in the AIDC/POS market have strengthened our
presence in this adjacent product space and positioned Ingram
Micro as the only global distributor of AIDC/POS products. We
remain focused on expansion in the mobile convergence market and
on building security solutions. Our diversification in product
and customer segments extends market opportunities for our
vendors and has been a factor in our receiving exclusive
authorization from certain vendors that are rationalizing their
channel strategy in response to the economy. We enable reseller
partners to sell and support complex infrastructure solutions
and effectively compete against large systems integrators
through our Infrastructure Technology Solutions Division in
North America and similar groups in other regions. Product line
expansion in this business segment has been focused on products
and solutions that bring higher productivity to our partners,
such as affordable virtualization solutions and storage
offerings. The economic downturn has been especially pronounced
in the consumer segment where we continue to explore ways to
profitably grow our CE business. For example, IM Australia added
a consumer and home office division to expand the addressable
market for its IT resellers. In support of our strategy to
diversify revenue streams and expand addressable markets, we
continue to execute on our private label business under the V7
brand, with a focus on computer accessories, peripherals and
supplies distributed in 30 countries. Overall, we believe that
our diversified product portfolio will provide a solid platform
for growth while softening the impact of lower demand in
specific categories.
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Services. IT Services is one of the
fastest-growing and highest gross margin segments of IT
spending. Ingram Micro is intent on building its service
offerings which will enhance our gross margin profile with no
inventory risk while allowing us to bring additional value to
our customers and become more connected to our resellers
end-user customers. Ingram Micro Services Division (North
America) continues to build its industry-leading managed and
professional services delivery engine, branded
Seismic. Managed services utilize application and
technology tools to more effectively and efficiently manage an
end-users IT environment while affording the solution
provider significant remote capabilities, service efficiencies
and corresponding improvement in profitability. These services
tend to be infrastructure-intensive and would burden service
providers with investments in data centers and large server
installations were they to deploy the services independently.
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Ingram Micro Logistics provides end-to-end supply-chain services
to manufacturers, software publishers and retailers on a
fee-for-service basis. We optimize our partners supply
chains with scalable logistics services that reduce costs,
create efficiencies and improve execution. Ingram Micro
Logistics enhances service with high levels of order and
inventory accuracy, on-time shipping, and world-class logistics
centers. We specialize in multi-channel solutions that require
flexible scale and a superior end-customer experience. Services
include order management, warehousing, fulfillment,
transportation management, customer service, returns processing,
kitting and IT connectivity.
In addition, we also surround products and programs with our own
services to resellers, such as technical support, financing and
training. During 2008, we launched a service to help resellers
easily identify green electronic products using an
environmental rating system. This service is especially helpful
for government resellers bidding on government contracts.
Although services represent one of the key initiatives of our
long-term strategy, they have represented less than 10% of our
revenues in the past and may not exceed that level in the near
term.
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Customers. Our focus on diversification
extends to the wide-ranging customers we serve in each of our
regions. Our customer segments are distinguished by the
end-users they serve and the types of products and services they
provide. The small-to-medium sized business (SMB)
customer segment is generally one of the largest segments of the
IT market in terms of revenue, and typically provides higher
gross margins for distributors as it is more challenging for
suppliers to penetrate. Our programs and services are geared to
add value to value-added resellers (VARs) and
solutions providers that serve as technology sources for the SMB
market. We serve VARs with a complete go-to-market
approach to a VARs business, including logistics, sales,
marketing, technical, financial and services support, enablement
training, and solutions development, as well as expand their
end-user reach through end-user demand generation marketing
programs. Our diversification strategy which opened
new markets in AIDC/POS, CE home automation and entertainment,
and mobility products offers new customer segments
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for our traditional IT products. We believe that our diverse
customer set in North America positions us to participate in any
technology infrastructure spending that may result from the
pending federal stimulus plan. For example, our position in the
North American government sector has been strengthened by our
GovEd Alliance, which provides government- and education-focused
resellers access to a number of tools and programs designed to
enable sales to government entities and best practices shared
with a community of government resellers. We try to limit
exposure to the impact of business fluctuations by maintaining a
balance in the customer segments we serve. We periodically
rebalance our customer mix in keeping with profitability goals.
To this end, we chose to proactively exit a portion of our
retail and corporate business in EMEA and China during 2008.
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Geographic Diversification. Our
presence in a larger number of markets than any other
broad-based technology products distributor provides us with a
more balanced global portfolio with which to mitigate risk. In
our more mature markets we are leveraging our solid foundation
as a market leader to spur additional growth by bringing new
products and services to market. We are positioned to take
advantage of higher growth potential in emerging markets. In
these markets, we have established strong management teams
versed in best practices provided by key management from
established markets. We are the largest IT distributor in the
world, by net sales. Based on currently available data, we
believe that we are the market share leader, by net sales, in
North America, Asia-Pacific, and Latin America and a strong
number two in Europe. These regional businesses provide a unique
global footprint that is unmatched by any of our broad-based
distribution competitors. Ingram Micro is the only global
broad-based distributor with distribution operations in the
Asia-Pacific region. Our broad global footprint enables us to
serve our resellers and suppliers with our extensive sales and
distribution network while mitigating the risks inherent in
individual markets. Our global market coverage provides a
competitive advantage with suppliers looking for worldwide
market penetration. The scale and flexibility of our operations
enables Ingram Micro to provide the infrastructure behind the
technology value chain in all its new and traditional forms. We
are resolute in our efforts to continually optimize our global
operations.
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We have local sales offices
and/or
Ingram Micro representatives in 35 countries: North America
(United States and Canada), EMEA (Austria, Belgium, Denmark,
Finland, France, Germany, Hungary, Italy, Israel, The
Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and
United Kingdom), Asia-Pacific (Australia, Bangladesh, the
Peoples Republic of China including Hong Kong, India,
Indonesia, Malaysia, New Zealand, Philippines, Singapore, Sri
Lanka, Thailand, and Vietnam), and Latin America (Argentina,
Brazil, Chile, Mexico, and Peru). Additionally, we serve many
other markets where we do not have an in-country presence
through our various export sales offices, including our general
telesales operations in numerous geographies. We sell our
products and services to resellers in approximately
150 countries.
As of January 3, 2009, we had 108 distribution centers
worldwide. We offer more than 1,500 suppliers access to a global
customer base of more than 170,000 resellers of various
categories including VARs, corporate resellers, direct
marketers, retailers, Internet-based resellers, and government
and education resellers.
For a discussion of our geographic reporting segments, see
Item 8. Financial Statements and Supplemental
Data. A discussion of foreign exchange risks relating to
our international operations is included under the captions
Market Risk and Market Risk Management
in Item 7. Managements Discussion and Analysis
of Financial Condition and Results of Operations.
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Competitive Differentiation through Superior
Execution. We are committed to enhancing
customer loyalty and share of business by continually
strengthening our value proposition. Through our understanding
and fulfillment of the needs of our reseller and supplier
partners, we provide our customers with the supply chain tools
they require to increase the efficiency of their operations,
enabling them to minimize inventory levels, improve customer
delivery, and enhance profitability. We provide business
information to our customers, suppliers, and end-users by
leveraging our information systems. We give resellers, and in
some cases their customers, real-time access to our product
inventory data. By providing improved visibility to all
participants in the supply chain, we allow inventory levels
throughout the channel to more closely reflect
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end-user demand. This information flow enables our superior
execution and our ability to provide favorable order fill rates
to our customers around the world while optimizing our
investment in working capital. In the U.S. and Canada, we
host channel communities covering more than 7,000 customers.
Included among our communities are Venture Tech Network and SMB
Alliance, both of which provide networking opportunities, tools
and support to build the resellers business. We host
communities to address the needs of resellers focused on the
government sector (GovEd Alliance) and system builders (System
ArchiTECHs). Our community members have access to an on-line
peer-to-peer networking site to identify potential partners and
share best practices. The networking site, The Zone, is offered
in customized versions specific to each community. Through our
data analytics capabilities we are able to leverage our
extensive database to provide valuable data for our vendors in
North America.
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Our commitment to a customer-centric focus has been widely
recognized throughout the IT industry, as evidenced by a number
of awards received by Ingram Micro over the past year. In 2008,
Ingram Micro ranked within the top three in Fortune
Magazines 2008 list of Most Admired
Companies in the Electronics and Office Equipment
Wholesalers category. Solution providers attending the 2008
Computing Technology Industry Associations Breakaway
conference selected Ingram Micro for its Best Distribution
and Support award for the second year in a row.
Australia Reseller News chose Ingram Micro for both the
Hardware Distributor of the Year and the Channel Choice
Distributor of the Year. Our vendors have recognized our
efforts, as well. For example, CA named Ingram Micro its
North American Distributor of the Year. Cherry Electrical
Products recognized our DC/POS Division in North America as its
top distributor for 2007 (awarded in April 2008) and our
Nordics DC/POS operation was acknowledged by Zebra as its
Nordics Partner of the Year for 2008. Our operations in the
Netherlands, Germany, Norway, New Zealand and Brazil earned top
honors from vendors during 2008.
Customers
Our reseller customers are distinguished by the end-user market
they serve, such as large corporate accounts, mid-market, SMBs,
or home users, and by the level of value they add to the basic
products they sell. They include VARs, corporate resellers,
retailers, systems integrators, direct marketers, Internet-based
resellers, independent dealers, reseller purchasing
associations, and PC assemblers. Many of our reseller customers
are heavily dependent on distribution partners with the
necessary systems, capital, inventory availability, and
distribution facilities in place to provide fulfillment and
other services.
We conduct business with most of the leading resellers of IT
products and services around the world. Our continued expansion
in adjacent markets, such as AIDC/POS, has generated
opportunities to expand sales in our current customer reseller
base, as well as add new reseller customers. In most cases we
conduct business under general terms and conditions, without
purchase requirements. We also have resale contracts with our
reseller customers that are terminable at will after a
reasonable notice period and have no minimum purchase
requirements. In addition, we also have specific agreements in
place with certain manufacturers and resellers in which we will
provide supply chain management services such as order
management, technical support, call center services, logistics
management, configuration management, and procurement management
services. Under these agreements either party can terminate them
without cause following reasonable notice. The service offerings
we provide to our customers are discussed further below under
Services. Our business is not substantially
dependent on any of these distribution or supply chain services
contracts. No single customer accounts for more than 10% of our
total revenue.
Sales and
Marketing
We employ sales representatives worldwide who assist resellers
with product and solution specifications, system configuration,
new product/service introductions, pricing, and availability.
Our product management and marketing groups create demand for
our suppliers products and services, enable the launch of
new products, and facilitate customer contact. Our marketing
programs are tailored to meet specific supplier and reseller
customer needs. These needs are met through a wide offering of
services by our in-house marketing organizations, including
advertising, direct mail campaigns, market research, on-line
marketing, retail programs, sales promotions, training,
solutions marketing, and assistance with trade shows and other
events. We
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also create and utilize specialized channel marketing
communities to deliver focused resources and business building
support to solution providers.
Products
We distribute and market hundreds of thousands of technology
products worldwide from the industrys premier computer
hardware suppliers, networking equipment suppliers, software
publishers, and other suppliers of computer peripherals, CE,
AIDC/POS and mobility hardware worldwide. Product assortments
vary by market, and the suppliers relative contribution to
our sales also varies from country to country. On a worldwide
basis, our revenue mix by product category has remained
relatively stable over the past several years, although it may
fluctuate between and within different operating regions. Over
the past several years, our product category revenues on a
consolidated basis have generally been within the following
ranges:
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IT Peripheral/CE/AIDC/POS/Mobility
and Others:
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40-45
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Systems:
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25-30
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Software:
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15-20
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Networking:
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10-15
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IT Peripheral/CE/AIDC/POS/Mobility and
Others. We offer a variety of products within
the Peripherals and Others category that fall within several
sub-categories:
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traditional IT peripherals such as printers, scanners, displays,
projectors, monitors, panels, mass storage, and tape;
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digital signage products such as large format LCD and plasma
displays, enclosures, mounts, media players, content software,
content creation, content hosting, and installation services;
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CE products such as cell phones, digital cameras, digital video
disc players, game consoles, televisions, audio, media
management and home control;
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AIDC/POS products such as barcode/card printers, AIDC scanners,
AIDC software, wireless infrastructure products;
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services provided by third parties and resold by Ingram Micro;
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component products such as processors, motherboards, hard
drives, and memory; and
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supplies and accessories such as ink and toner supplies, paper,
carrying cases, and anti-glare screens.
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Systems. We define our systems category
as self-standing computer systems capable of functioning
independently. We offer a variety of systems, such as rack,
tower and blade servers; desktops; portable personal computers;
and personal digital assistants (PDAs).
Software. We define our software
category as a broad variety of applications containing computer
instructions or data that can be stored electronically. We offer
a variety of software products, such as business application
software, operating system software, entertainment software,
middleware, developer software tools, security software
(firewalls, intrusion detection, and encryption) and storage
software.
Networking. Our networking category
includes networking hardware, communication products and network
security hardware. Networking hardware includes switches, hubs,
routers, wireless local area networks, wireless wide area
networks, network interface cards, cellular data cards,
network-attached storage and storage area networks.
Communication products incorporate Voice Over Internet Protocol,
communications, modems, phone systems and video/audio
conferencing. Network security hardware includes firewalls,
Virtual Private Networks, intrusion detection, and
authentication devices and appliances.
Services
We offer fee-based services as well as services that can be
provided along with our product sales. Our fee-based services
include supply chain services to suppliers and customers
desiring to outsource specific supply chain functions through
our Ingram Micro Logistics division in North America and
existing business units in other
6
regions. We also receive compensation for various services,
including technical support, financial services, sales and
marketing services, eCommerce services, licensing solutions and
managed services.
Although services represent one of the initiatives of our
long-term strategy, they have represented less than 10% of our
annual revenues in the past and may not exceed that level in the
near term.
Suppliers
Our worldwide suppliers include leading computer hardware
suppliers, networking equipment suppliers, software publishers,
CE manufacturers, and AIDC/POS suppliers, such as Acer; Adobe;
Advanced Micro Devices Inc.; APC; Apple; Autodesk; Asus; Belkin;
Brother; Canon USA, Inc.; Cisco; Citrix; CA; Emerson Network
Power (India) Private Limited; Epson; Fujitsu Siemens Computers;
Google; Haier; Hewlett-Packard; Hitachi GST; IBM; InFocus;
Intel; Juniper Networks; Kingston Technology; Lenovo; Lexmark;
LG Electronics; Logitech; McAfee; Microsoft; Motorola; NEC
Display Solutions; Nortel; Panasonic; Philips; Pioneer; Polycom;
Printronix; Samsung; SanDisk; Seagate; Sonic Wall; Sony; Sony
Ericsson; Sun Microsystems; Symantec; Targus; Trend Micro;
Toshiba; ViewSonic Corporation; VMware; Websense; Western
Digital; Xerox; and Zebra. Products purchased from
Hewlett-Packard generated approximately 23%, 23%, and 22% of our
net sales in fiscal years 2008, 2007 and 2006, respectively.
There were no other vendors that represented 10% or more of our
net sales in any of the last three years.
Our suppliers generally warrant the products we distribute and
allow returns of defective products, including those returned to
us by our customers. We generally do not independently warrant
the products we distribute; however, local laws might impose
warranty obligations upon distributors (such as in the case of
supplier liquidation). In certain markets we administer extended
warranty programs, supported by a third party, on supplier
products. We do warrant services, products that we
build-to-order from components purchased from other sources, and
our own branded products. Provision for estimated warranty costs
is recorded at the time of sale and periodically adjusted to
reflect actual experience. Historically, warranty expense has
not been material.
We have written distribution agreements with many of our
suppliers; however, these agreements usually provide for
nonexclusive distribution rights and often include territorial
restrictions that limit the countries in which we can distribute
the products. The agreements also are generally short term,
subject to periodic renewal, and often contain provisions
permitting termination by either party without cause upon
relatively short notice. Certain distribution agreements either
require (at our option) or allow for the repurchase of inventory
upon termination of the agreement. Even in cases where suppliers
are not obligated to accept inventory returns upon termination
certain suppliers will elect to repurchase the inventory while
other suppliers will either assist with liquidation or resale of
the inventory.
Competition
Each region in which we operate (North America, EMEA,
Asia-Pacific and Latin America) is highly competitive. In the
current economic environment, competitive pressure in the form
of aggressive pricing is more acute. In addition to price, other
competitive factors include:
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ability to tailor specific solutions to customer needs;
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availability of technical and product information;
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credit terms and availability;
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effectiveness of sales and marketing programs;
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products and services availability;
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quality and breadth of product lines and services;
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speed and accuracy of delivery; and
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web- or call center-based sales.
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7
We compete against broad-based IT distributors such as Tech Data
and Synnex Corporation. There are a number of specialized
competitors who focus upon one market or product or a particular
sector with whom we compete. Examples include Avnet, Arrow, and
Bell Microproducts in components and enterprise products;
D&H Distributing, ADI, ArchBrook Laguna and Petra in
consumer electronics; and ScanSource and Bluestar in
AIDC/POS
products. While we face some competitors in more than one
region, others are specialized in local markets, such as Digital
China (China), Redington (India), Express Data (Australia and
New Zealand), Intcomex (Latin America), Esprinet (Italy and
Spain), ALSO and Actebis (both in Europe). We believe that
suppliers and resellers pursuing global strategies continue to
seek distributors with global sales and support capabilities.
The evolving direct-sales relationships between manufacturers,
resellers, and end-users continue to introduce change into our
competitive landscape. We compete, in some cases, with hardware
suppliers and software publishers that sell directly to reseller
customers and end-users. However, we may become a business
partner to these companies by providing supply chain services
optimized for the IT market. Additionally, as consolidation
occurs among certain reseller segments and customers gain market
share and build capabilities similar to ours, certain resellers,
such as direct marketers, may become our competitors. As some
manufacturer and reseller customers move their back-room
operations to distribution partners, outsourcing and value-added
services may be areas of opportunity. Many of our suppliers and
reseller customers are looking to outsourcing partners to
perform back-room operations. There has been an accelerated
movement among transportation and logistics companies to provide
many of these fulfillment and
e-commerce
supply chain services. Within this arena, we face competition
from major transportation and logistics suppliers such as DHL,
Menlo, and UPS Supply Chain Solutions.
We are constantly seeking to expand our business into areas
closely related to our IT products and services distribution
business. As we enter new business areas, including value-added
services, we may encounter increased competition from current
competitors
and/or from
new competitors, some of which may be our current customers.
Seasonality
We experience some seasonal fluctuation in demand in our
business. For instance, we typically see lower demand,
particularly in Europe, in the summer months. We also normally
see an increase in demand in the September to December period,
driven primarily by pre-holiday impacts on stocking levels in
the retail channel and on volume of business for our North
American fee-based logistics services.
Inventory
Management
We seek to maintain sufficient quantities of product inventories
to achieve optimum order fill rates. Our business, like that of
other distributors, is subject to the risk that the value of our
inventory will be affected adversely by suppliers price
reductions or by technological changes affecting the usefulness
or desirability of the products comprising the inventory. It is
the policy of many suppliers of technology products to offer
distributors limited protection from the loss in value of
inventory due to technological change or a suppliers price
reductions. When protection is offered, the distributor may be
restricted to a designated period of time in which products may
be returned for credit or exchanged for other products or during
which price protection credits may be claimed. We take various
actions, including monitoring our inventory levels and
controlling the timing of purchases, to maximize our protection
under supplier programs and reduce our inventory risk. However,
no assurance can be given that current protective terms and
conditions will continue or that they will adequately protect us
against declines in inventory value, or that they will not be
revised in such a manner as to adversely impact our ability to
obtain price protection. In addition, suppliers may become
insolvent and unable to fulfill their protection obligations to
us. We are subject to the risk that our inventory values may
decline and protective terms under supplier agreements may not
adequately cover the decline in values. In addition, we
distribute a small amount of private label products for which
price protection is not customarily contractually available, for
which we do not normally enjoy return rights, and for which we
bear certain increased risks. We manage these risks through
pricing and continual monitoring of existing inventory levels
relative to customer demand. On an ongoing basis, we reserve for
excess and obsolete inventories and these reserves are
appropriately utilized for liquidation of such inventories,
reflecting our forecasts of future demand and market conditions.
8
Inventory levels may vary from period to period, due, in part,
to differences in actual demand from that forecasted when
placing orders, the addition of new suppliers or new lines with
current suppliers, expansion into new product areas, such as
AIDC/POS and CE, and strategic purchases of inventory. In
addition, payment terms with inventory suppliers may vary from
time to time, and could result in fewer inventories being
financed by suppliers and a greater amount of inventory being
financed by our capital. Our payment patterns can be influenced
by incentives, such as early pay discounts offered by suppliers.
Trademarks
and Service Marks
We own or are the licensee of various trademarks and service
marks, including, among others, Ingram Micro, the
Ingram Micro logo, V7 (Video Seven),
VentureTech Network, AVAD and
SymTech. Certain of these marks are registered, or
are in the process of being registered, in the United States and
various other countries. Even though our marks may not be
registered in every country where we conduct business, in many
cases we have acquired rights in those marks because of our
continued use of them.
Employees
As of January 3, 2009, we employed approximately 14,500
associates worldwide (as measured on a full-time equivalent
basis). Certain of our employees in EMEA and Latin America are
subject to union representation, collective bargaining or
similar arrangements. Our success depends on the talent and
dedication of our associates, and we strive to attract, hire,
develop, and retain outstanding associates. We believe we reap
significant benefits from having a strong and seasoned
management team with many years of experience in the IT and
related industries. We have a process for continuously measuring
the status of associate success and responding to associate
priorities. We believe that our relationships with our
associates are generally good.
Available
Information
We are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended. We therefore file
periodic reports, proxy statements and other information with
the Securities and Exchange Commission (the SEC).
Such reports may be obtained by visiting the Public Reference
Room of the SEC at 100 F Street, NE,
Washington, D.C. 20549. Information on the operation of the
Public Reference Room can be obtained by calling the SEC at
(800) SEC-0330. In addition, the SEC maintains an Internet
site (www.sec.gov) that contains reports, proxy and information
statements and other information.
Financial and other information can also be accessed through our
website at www.ingrammicro.com. There, we make available,
free of charge, copies of our annual report on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
and amendments to those reports filed or furnished as soon as
reasonably practicable after filing such material electronically
or otherwise furnishing it to the SEC. The information posted on
our website is not incorporated into this Annual Report on
Form 10-K.
EXECUTIVE
OFFICERS OF THE COMPANY
The following list of executive officers of Ingram Micro is as
of March 1, 2009:
Gregory M.E.
Spierkel. Mr. Spierkel, age 52, has
been our chief executive officer since June 2005. He previously
served as president from March 2004 to June 2005, as executive
vice president and president of Ingram Micro Europe from June
1999 to March 2004, and as senior vice president and president
of Ingram Micro
Asia-Pacific
from July 1997 to June 1999. Prior to joining Ingram Micro,
Mr. Spierkel was vice president of global sales and
marketing at Mitel Inc., a manufacturer of telecommunications
and semiconductor products, from March 1996 to June 1997 and was
president of North America at Mitel from April 1992 to March
1996. Mr. Spierkel is a member of the Board of Directors of
PACCAR Inc.
Alain Monié. Mr. Monié,
age 58, has been our president and chief operating officer
since August 1, 2007. He previously served as executive
vice president and president of Ingram Micro Asia-Pacific from
January 2004 to August 2007. He joined Ingram Micro as executive
vice president in January 2003. Previously, Mr. Monié
was an
9
international executive consultant with aerospace and defense
corporations from September 2002 to January 2003.
Mr. Monié also served as president of the Latin
American division of Honeywell International from January 2000
to August 2002. He joined Honeywell following its merger with
Allied Signal Inc., where he built a
17-year
career on three continents, progressing from a regional sales
manager to head of Asia-Pacific operations from October 1997 to
December 1999. Mr. Monié is a member of the Board of
Directors of Jones Lang LaSalle Incorporated since October 2005
and Amazon.com since November 2008.
William D. Humes. Mr. Humes,
age 44, has been our executive vice president and chief
financial officer since April 2005. Mr. Humes served as
senior vice president and chief financial officer designee from
October 2004 to March 2005, corporate vice president and
controller from February 2004 to October 2004, vice president,
corporate controller from February 2002 to February 2004 and
senior director, worldwide financial planning, reporting and
accounting from September 1998 to February 2002. Prior to
joining Ingram Micro, Mr. Humes was a senior audit manager
at PricewaterhouseCoopers LLP.
Keith W.F. Bradley. Mr. Bradley,
age 45, has been our executive vice president and president
of Ingram Micro North America since January 2005. He previously
served as interim president and senior vice president and chief
financial officer of Ingram Micro North America from June 2004
to January 2005, and as the regions senior vice president
and chief financial officer from January 2003 to May 2004. Prior
to joining Ingram Micro in February 2000 as vice president and
controller for the companys United States operations,
Mr. Bradley was vice president and global controller of The
Disney Stores, a subsidiary of Walt Disney Company, and an
auditor and consultant with PricewaterhouseCoopers LLP in the
United Kingdom, United Arab Emirates and the United States.
Jay A. Forbes. Mr. Forbes,
age 48, has been our executive vice president and president
of Ingram Micro Europe, Middle East & Africa since
December 2007. Prior to joining Ingram Micro, Mr. Forbes
served as president and chief executive officer of Aliant Inc.,
a $2.0 billion information and telecommunications
technology company. Mr. Forbes was previously executive
vice president of Corporate Resources and chief financial
officer of Oxford Properties Group Inc., a leading Canadian
commercial property ownership and services company with total
assets of $3.5 billion. From 1993 to 2000, Mr. Forbes
was employed by Emera Inc., where he held several managerial
positions including senior vice president and chief financial
officer.
Shailendra Gupta. Mr. Gupta,
age 46, has been our executive vice president and president
of Ingram Micro Asia-Pacific since January 2008. Mr. Gupta
served as our senior vice president, Ingram Micro Asia-Pacific
from August 2007 to January 2008. Prior to joining Ingram Micro,
Mr. Gupta spent nine years with Tech Pacific Group,
starting in 1995 as managing director of India, then in 2001 was
promoted to chief executive officer. Mr. Gupta joined
Ingram Micro in 2004 as chief operating officer of Ingram Micro
Asia-Pacific when Ingram Micro acquired Tech Pacific. Prior to
Tech Pacific, Mr. Gupta spent ten years with
Godrej & Boyce Manufacturing Co. Ltd., India, a large
diversified Indian conglomerate, where he held various
managerial positions including manufacturing plant
responsibility.
Larry C. Boyd. Mr. Boyd,
age 56, has been our senior vice president, secretary and
general counsel since March 2004. He previously served as senior
vice president, U.S. legal services, for Ingram Micro North
America from January 2000 to January 2004. Prior to joining
Ingram Micro, he was a partner with the law firm of Gibson,
Dunn & Crutcher from January 1985 to December 1999.
Ria M. Carlson. Ms. Carlson,
age 47, has been our corporate vice president,
strategy & communications, since April 2005. She
previously served as vice president, investor
relations & corporate communications from March 2001
through March 2005. Before joining Ingram Micro,
Ms. Carlson served as vice president, communications and
investor relations for Equity Marketing, Inc., an international
toy and promotions company, from
1999-2001,
vice president, public and investor relations for Sierra Health
Services, Inc., from
1996-1999,
and associate vice president, corporate communications for FHP
International Corporation, a health care organization, from 1989
to 1996.
Lynn Jolliffe. Ms. Jolliffe,
age 56, has been our senior vice president, human resources
since July 2007. She joined Ingram Micro in 1999 as the vice
president of human resources for the European region.
Ms. Jolliffe served
10
as vice president of human resources for the North American
region from October 2006 until June 2007. Prior to Ingram Micro,
she served in various executive roles in Canada with Holt
Renfrew Ltd. and White Rose Limited.
Mario F. Leone. Mr. Leone,
age 53, has been our senior vice president and chief
information officer since January 2009. Prior to joining Ingram
Micro, Mr. Leone served as senior vice president and chief
information officer at Federal-Mogul Corporation, a global
supplier of powertrain and safety technologies serving the
automotive, industrial and worldwide after-markets.
Mr. Leone was previously senior vice president and chief
information officer at FIAT, and its business unit IVECO, a
leading European industrial vehicle company. Mr. Leone has
also held executive positions in information systems for Dow
Chemical Company and Union Carbide Corporation.
Alain Maquet. Mr. Maquet,
age 57, has been our senior vice president and president of
Ingram Micro Latin America since March 2005. Mr. Maquet
served as our senior vice president, southern and western Europe
from January 2001 to February 2004. Mr. Maquet joined
Ingram Micro in 1993 as the managing director of France and had
added additional countries to his responsibilities over the
years. His career spans 30 years, 25 of which are in the
technology industry, and he co-started an IT distribution
company before joining Ingram Micro.
11
CAUTIONARY
STATEMENTS FOR PURPOSES OF THE SAFE
HARBOR PROVISIONS OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
The Private Securities Litigation Reform Act of 1995 (the
Act) provides a safe harbor for
forward-looking statements to encourage companies to
provide prospective information, so long as such information is
identified as forward-looking and is accompanied by meaningful
cautionary statements identifying important factors that could
cause actual results to differ materially from those discussed
in the forward-looking statement(s). Ingram Micro desires to
take advantage of the safe harbor provisions of the Act.
Our periodic and current reports filed with the Securities and
Exchange Commission, periodic press releases, and other public
documents and statements, may contain forward-looking statements
within the meaning of the Act, including, but not limited to,
managements expectations for process improvement;
competition; revenues, expenses and other operating results or
ratios; contingencies and litigation; economic conditions;
liquidity; capital requirements; and exchange rate fluctuations.
Forward-looking statements also include any statement that may
predict, forecast, indicate or imply future results,
performance, or achievements. Forward-looking statements can be
identified by the use of terminology such as
believe, anticipate, expect,
estimate, may, will,
should, project, continue,
plans, aims, intends,
likely, or other similar words or phrases.
We disclaim any duty to update any forward-looking statements.
In addition, our representatives participate from time to time
in:
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speeches and calls with market analysts;
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conferences, meetings and calls with investors and potential
investors in our securities; and
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other meetings and conferences.
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Some of the information presented in these calls, meetings and
conferences may be forward-looking within the meaning of the Act.
Our actual results could differ materially from those projected
in forward-looking statements made by or on behalf of Ingram
Micro. In this regard, from time to time, we have failed to meet
consensus analysts estimates of revenue or earnings. In
future quarters, our operating results may differ significantly
from the expectations of public market analysts or investors or
those projected in forward-looking statements made by or on
behalf of Ingram Micro due to unanticipated events, including,
but not limited to, those discussed in this section. Because of
our narrow gross margins, the impact of the risk factors stated
below may magnify the impact on our operating results
and/or
financial condition.
Difficult conditions in the global economy in general have
affected our business and results of operations and these
conditions are not expected to improve in the near future and
may worsen. A prolonged worldwide economic downturn may
further intensify competition, regionally and internationally,
which may lead to lower sales or reduced sales growth, loss of
market share, reduced prices, lower gross margins, loss of
vendor rebates, extended payment terms with customers, increased
bad debt risks, shorter payment terms with vendors, reduced
access to liquidity and higher interest costs, increased
currency volatility making hedging more expensive and more
difficult to obtain, increased inventory losses related to
obsolescence
and/or
excess quantities, all of which could adversely affect our
results of operations, financial condition and cash flows. Our
results of operations have been affected to varying degrees by
the factors noted above resulting from the difficult conditions
in the global economy in general. If the current economic
downturn continues or intensifies, our results could be more
adversely affected. Furthermore, the IT products industry is
subject to rapid technological change, new and enhanced product
specification requirements and evolving industry standards,
which can further cause inventory in stock to decline
substantially in value or to become obsolete, regardless of the
general economic environment. It is the policy of many suppliers
of IT products to offer distributors like us, who purchase
directly from them, limited protection from the loss in value of
inventory due to technological change or such suppliers
price reductions. If major suppliers decrease the availability
of price protection to us, such a change in policy could lower
our gross margins on products
12
we sell or cause us to record inventory write-downs. In
addition, suppliers could become insolvent and unable to fulfill
their protection obligations to us. We offer no assurance that
our price protection will continue, that unforeseen new product
developments will not materially adversely affect us, or that we
will successfully manage our existing and future inventories.
Significant changes in supplier terms, such as higher thresholds
on sales volume before distributors may qualify for discounts
and/or
rebates, the overall reduction in the amount of incentives
available, reduction or termination of price protection, return
levels, or other inventory management programs, or reductions in
payment terms or trade credit, or vendor-supported credit
programs, may adversely impact our results of operations or
financial condition.
We also have significant credit exposure to our reseller
customers and negative trends in their businesses could cause us
significant credit loss. As is customary in many industries, we
extend credit to our reseller customers for a significant
portion of our net sales. Resellers have a period of time,
generally 30 to 45 days after date of invoice, to make
payment. We are subject to the risk that our reseller customers
will not pay for the products they have purchased. The risk that
we may be unable to collect on receivables may increase if our
reseller customers experience decreases in demand for their
products and services or otherwise become less stable, due to
adverse economic conditions. If there is a substantial
deterioration in the collectibility of our receivables or if we
cannot obtain credit insurance at reasonable rates, are unable
to collect under existing credit insurance policies, or fail to
take other actions to adequately mitigate such credit risk, our
earnings, cash flows and our ability to utilize receivable-based
financing could deteriorate.
Economic downturns may also lead to restructuring actions and
associated expenses in response to the lower sales volume. In
addition, we may not be able to adequately adjust our cost
structure in a timely fashion to remain competitive, which may
cause our profitability to suffer.
Changes in our credit rating or other market factors, such as
continued adverse capital and credit market conditions or
reduction of cash flow from operations, may significantly affect
our ability to meet liquidity needs, reduce access to capital,
and/or
increase our costs of borrowing. Our business requires
significant levels of capital to finance accounts receivable and
product inventory that is not financed by trade creditors. This
is especially true when our business is expanding, including
through acquisitions, but we still have substantial demand for
capital even during periods of stagnant or declining net sales.
In order to continue operating our business, we will continue to
need access to capital, including debt financing. In addition,
changes in payment terms with either suppliers or customers
could increase our capital requirements. Our ability to repay
current or future indebtedness when due, or have adequate
sources of liquidity to meet our business needs may be affected
by changes to the cash flows of our subsidiaries. A reduction of
cash flow generated by our subsidiaries may have an adverse
effect on our liquidity. Under certain circumstances, legal, tax
or contractual restrictions may limit our ability or make it
more costly to redistribute cash between subsidiaries to meet
the companys overall operational or strategic investment
needs, or for repayment of indebtedness requirements.
We believe that our existing sources of liquidity, including
cash resources and cash provided by operating activities,
supplemented as necessary with funds available under our credit
arrangements, will provide sufficient resources to meet our
present and future working capital and cash requirements for at
least the next twelve months. However, the capital and credit
markets have been experiencing unprecedented levels of
volatility and disruption. Such market conditions may limit our
ability to replace, in a timely manner, maturing liabilities or
affect our ability to access committed capacities or the capital
we require may not be available on terms acceptable to us, or at
all, due to inability of our finance partners to meet their
commitments to us. The lack of availability of such funding
could harm our ability to operate or expand our business.
In addition, our cash and cash equivalents (including trade
receivables collected
and/or
monies set aside for payment to creditors) are deposited
and/or
invested with various financial institutions located in the
various countries in which we operate. We endeavor to monitor
these financial institutions regularly for credit quality;
however, we are exposed to risk of loss on such funds or we may
experience significant disruptions in our liquidity needs if one
or more of these financial institutions were to suffer
bankruptcy or similar restructuring.
Our failure to adequately adapt to economic and industry
changes and to manage prolonged contractions could negatively
impact our future operating results. Rapid
changes in the operating environment for IT distributors have
placed significant strain on our business, and we offer no
assurance that our ability to manage future
13
adverse industry trends will be successful. Dynamic changes in
the industry have resulted in new and increased responsibilities
for management personnel and have placed and continue to place a
significant strain upon our management, operating and financial
systems, and other resources. This strain may result in
disruptions to our business and decreased revenues and
profitability. In addition, we may not be able to attract or
retain sufficient personnel to manage our operations through
such dynamic changes. Even with sufficient personnel we cannot
assure our ability to successfully manage future adverse
industry trends. Also crucial to our success in managing our
operations will be our ability to achieve additional economies
of scale. Our failure to achieve these additional economies of
scale could harm our profitability or lead to restructuring
actions which may have incremental discrete costs. In addition,
we may not achieve the objectives of our process improvement
efforts or be able to adequately adjust our cost structure in a
timely fashion to remain competitive, which may cause our
profitability to suffer.
If our business does not perform well, we may be required to
recognize further impairments of our intangible or other
long-lived assets or to establish a valuation allowance against
our deferred income tax assets, which could adversely affect our
results of operations or financial condition. In the fourth
quarter of 2008, consistent with the drastic decline in the
capital markets in general, we experienced a similar decline in
the market value of our stock. As a result, our market
capitalization was significantly lower than our book value. In
accordance with the provisions of Statement of Financial
Accounting Standards No. 142, Goodwill and Other
Intangible Assets (FAS 142), we performed
an impairment test of our goodwill during the fourth quarter of
2008, which coincided with the timing of our normal annual
impairment test. As a result of this test, we recognized a
charge of $742.6 million to impair all of our goodwill in
the fourth quarter of 2008. This non-cash charge materially
impacted our equity and results of operations in 2008, but does
not impact our ongoing business operations, liquidity, cash flow
or compliance with covenants for our credit facilities.
Deferred income tax represents the tax effect of the differences
between the book and tax bases of assets and liabilities.
Deferred tax assets, which also include net operating loss
carryforwards for entities that have generated or continue to
generate taxable losses, are assessed periodically by management
to determine if they are realizable. Factors in
managements determination include the performance of the
business and the feasibility of ongoing tax planning strategies.
If based on available information, it is more likely than not
that the deferred income tax asset will not be realized then a
valuation allowance must be established with a corresponding
charge to net income. Such charges could have a material adverse
effect on our results of operations or financial condition.
Our future results of operations may be impacted by the
prolonged weakness in the current economic environment which may
result in an impairment of any goodwill recorded in the future
and/or other
long-lived assets or valuation allowance on our deferred tax
assets, which could adversely affect our results of operations
or financial condition.
We continually experience intense competition across all
markets for our products and services, which may intensify in a
more difficult global economy. Our competitors include
local, regional, national, and international distributors, as
well as suppliers that employ a direct-sales model. As a result
of intense price competition in the IT products and services
distribution industry, our gross margins have historically been
narrow and we expect them to continue to be narrow in the
future. In addition, when there is overcapacity in our industry,
our competitors may reduce their prices in response to this
overcapacity. We offer no assurance that we will not lose market
share, or that we will not be forced in the future to reduce our
prices in response to the actions of our competitors and thereby
experience a further reduction in our gross margins.
Furthermore, to remain competitive we may be forced to offer
more credit or extended payment terms to our customers. This
could increase our required capital, financing costs, and the
amount of our bad debt expenses. We have also initiated and
expect to continue to initiate other business activities and may
face competition from companies with more experience
and/or from
new entries in those new markets. As we enter new business
areas, we may encounter increased competition from current
competitors
and/or from
new competitors, some of which may be our current customers or
suppliers, which may negatively impact our sales or
profitability.
We operate a global business that exposes us to risks
associated with international activities. We have local
sales offices
and/or
Ingram Micro representatives in 35 countries, and sell our
products and services to resellers in approximately 150
countries. A large portion of our revenue is derived from our
international operations. As a result, our operating results and
financial condition could be significantly affected by risks
14
associated with international activities, including
environmental and trade protection laws, policies and measures;
tariffs; export license requirements; enforcement of the Foreign
Corrupt Practices Act, or similar laws of other jurisdictions on
our business activities outside the Unites States; other
regulatory requirements; economic and labor conditions;
political or social unrest; economic instability or natural
disasters in a specific country or region, such as hurricanes
and tsunamis; health or similar issues such as the outbreak of
the avian flu; tax laws in various jurisdictions around the
world (as experienced in our Brazilian subsidiary); and
difficulties in staffing and managing international operations.
We are exposed to market risk primarily related to foreign
currencies and interest rates. In particular, we are exposed to
changes in the value of the U.S. dollar versus the local
currency in which the products are sold and goods and services
are purchased, including devaluation and revaluation of local
currencies. We manage our exposure to fluctuations in the value
of currencies and interest rates using a variety of financial
instruments. Although we believe that our exposures are
appropriately diversified across counterparties and that these
counterparties are creditworthy financial institutions and we
monitor the creditworthiness of our counterparties, we are
exposed to credit loss in the event of nonperformance by our
counterparties to foreign exchange and interest rate swap
contracts and we may not be able to adequately mitigate all
foreign currency related risks.
We have made and expect to continue to make investments in
new business strategies and initiatives, including acquisitions
and continued enhancements to information systems, process and
procedures and infrastructure on a global basis, which could
disrupt our business and have an adverse effect on our operating
results. Such endeavors may involve significant risks and
uncertainties, including distraction of managements
attention away from normal business operations; insufficient
revenue generation to offset liabilities assumed and expenses
associated with the strategy; difficulty in the integration of
acquired businesses, including new employees, business systems
and technology; inability to adapt to challenges of new markets,
including geographies, products and services, or to attract new
sources of profitable business from expansion of products or
services; exposure to new regulations; and issues not discovered
in our due diligence process. Our operations may be adversely
impacted by an acquisition that (i) is not suited for us,
(ii) is improperly executed, or (iii) substantially
increases our debt. All these factors could adversely affect our
operating results or financial condition.
We are dependent on a variety of information systems and a
failure of these systems could disrupt our business and harm our
reputation and net sales. We depend on a variety of
information systems for our operations, including our
centralized IMpulse information processing system, which
supports many of our operational functions such as inventory
management, order processing, shipping, receiving, and
accounting. Because IMpulse is comprised of a number of legacy,
internally developed applications, it can be harder to upgrade,
and may not be adaptable to commercially available software.
Also, we may acquire other businesses having information systems
and records which may be converted and integrated into current
Ingram Micro information systems. Although we have not in the
past experienced material system-wide failures or downtime of
any of our information systems used around the world, we have
experienced failures in certain specific geographies. Failures
or significant downtime for any of our information systems could
prevent us from placing product orders with vendors or recording
inventory received, taking customer orders, printing product
pick-lists,
and/or
shipping and invoicing for product sold. It could also prevent
customers from accessing our price and product availability
information.
In order to support future growth of the company, we continue to
review our business needs and are making continuous
improvements, including standardization where appropriate of
business processes, and technology upgrades to our information
systems, including software applications and electronic
interfaces with our business partners. This can be a lengthy and
expensive process that may result in a significant diversion of
resources from other operations. In implementing these
enhancements, we may experience greater-than-acceptable
difficulty or costs; we may also experience significant
disruptions in our business, which could have a material adverse
effect on our financial results and operations, particularly if
we were to replace a substantial portion of our current systems
and processes. In addition, we offer no assurance that
competitors will not develop superior systems or that we will be
able to meet evolving market requirements by upgrading our
current systems at a reasonable cost, or at all.
Finally, we also rely on the Internet for a significant
percentage of our orders and information exchanges with our
customers. The Internet and individual websites have experienced
a number of disruptions and slowdowns,
15
some of which were caused by organized attacks. In addition,
some websites have experienced security breakdowns. To date, our
website has not experienced any material breakdowns, disruptions
or breaches in security; however, we cannot assure that this
will not occur in the future. If we were to experience a
security breakdown, disruption or breach that compromised
sensitive information, this could harm our relationship with our
customers, suppliers or associates. Disruption of our website or
the Internet in general could impair our order processing or
more generally prevent our customers and suppliers from
accessing information. This could cause us to lose business.
Terminations of a supply or services agreement or a
significant change in supplier terms or conditions of sale could
negatively affect our operating margins, revenue or the level of
capital required to fund our operations. A significant
percentage of our net sales relates to products sold to us by
relatively few suppliers or publishers. As a result of such
concentration risk, terminations of supply or services
agreements, or a significant change in the terms or conditions
of sale from one or more of our more significant partners, or
bankruptcy or closure of business by one or more of our more
significant partners could negatively affect our operating
margins, revenues or the level of capital required to fund our
operations. Our suppliers have the ability to make, and in the
past have made, rapid and significantly adverse changes in their
sales terms and conditions, such as reducing the amount of price
protection and return rights as well as reducing the level of
purchase discounts and rebates they make available to us. In
most cases, we have no guaranteed price or delivery agreements
with suppliers. In certain product categories, such as systems,
limited price protection or return rights offered by suppliers
may have a bearing on the amount of product we may be willing to
stock. We expect restrictive supplier terms and conditions to
continue in the foreseeable future. Our inability to pass
through to our reseller customers the impact of these changes,
as well as our failure to develop systems to manage ongoing
supplier programs, could cause us to record inventory
write-downs or other losses and could have a material negative
impact on our gross margins.
We receive purchase discounts and rebates from suppliers based
on various factors, including sales or purchase volume and
breadth of customers. These purchase discounts and rebates may
affect gross margins. Many purchase discounts from suppliers are
based on percentage increases in sales of products. Our
operating results could be negatively impacted if these rebates
or discounts are reduced or eliminated or if our vendors
significantly increase the complexity of process and costs for
us to receive such rebates.
Our ability to obtain particular products or product lines in
the required quantities and to fulfill customer orders on a
timely basis is critical to our success. The IT industry
experiences significant product supply shortages and customer
order backlogs from time to time due to the inability of certain
suppliers to supply certain products on a timely basis. As a
result, we have experienced, and may in the future continue to
experience, short-term shortages of specific products. In
addition, suppliers who currently distribute their products
through us may decide to shift to or substantially increase
their existing distribution, through other distributors, their
own dealer networks, or directly to resellers or end-users.
Suppliers have, from time to time, made efforts to reduce the
number of distributors with which they do business. This could
result in more intense competition as distributors strive to
secure distribution rights with these vendors, which could have
an adverse effect on our operating results. If suppliers are not
able to provide us with an adequate supply of products to
fulfill our customer orders on a timely basis or we cannot
otherwise obtain particular products or a product line or
suppliers substantially increase their existing distribution
through other distributors, their own dealer networks, or
directly to resellers, our reputation, sales and profitability
may suffer.
Changes in, or interpretations of, tax rules and regulations
may adversely affect our effective income tax rates or operating
margins and we may be required to pay additional tax
assessments. Unanticipated changes in our tax rates could
also affect our future results of operations. Our future
effective income tax rates or operating margins could also be
unfavorably affected by unanticipated decreases in the amount of
revenue or earnings in countries in low statutory tax rates, or
by changes in the valuation of our deferred tax assets and
liabilities. In addition, we are subject to the continuous
examination of our income tax returns by the Internal Revenue
Service and other domestic and foreign tax authorities. We
regularly evaluate our tax contingencies and uncertain tax
positions to determine the adequacy of our provision for income
and other taxes based on the technical merits and the likelihood
of success resulting from tax examinations. Any adverse outcome
from these continuous examinations may have an adverse effect on
our operating results and financial position.
16
We recorded a charge of $33.8 million in the first quarter
of 2007 related to commercial taxes on imported software in
Brazil and have disclosed a contingency with respect to
potential taxes on services in Brazil as discussed in
Note 10 to our consolidated financial statements. We
released a portion of this reserve in the fourth quarters of
2008 and 2007, totaling $8.2 million and $3.6 million,
respectively, which relate to unassessed periods, for which it
is our opinion, after consultation with counsel, that the
statute of limitations for an assessment from Brazilian tax
authorities had expired.
We cannot predict what loss we might incur as a result of the
SEC inquiry we have received as well as other litigation matters
and contingencies that we may be involved with from time to
time. In May 2007, we received a Wells Notice
from the SEC, which indicated that the SEC staff intends to
recommend an administrative proceeding against the company
seeking disgorgement and prejudgment interest, though no dollar
amounts were specified in the notice. The staff contends that
the company failed to maintain adequate books and records
relating to certain of our transactions with McAfee Inc.
(formerly Network Associates, Inc.), and was a cause of
McAfees own securities-laws violations relating to the
filing of reports and maintenance of books and records. During
the second quarter of 2007, we recorded a reserve of
$15.0 million for the current best estimate of the probable
loss associated with this matter based on discussions with the
SEC staff concerning the issues raised in the Wells Notice. No
resolution with the SEC has been reached at this point, however,
and there can be no assurance that such discussions will result
in a resolution of these issues. When the matter is resolved,
the final disposition and the related cash payment may exceed
the current accrual for the best estimate of probable loss. At
this time, it is also not possible to accurately predict the
timing of a resolution. We have responded to the Wells Notice
and continue to cooperate fully with the SEC on this matter,
which was first disclosed during the third quarter of 2004.
There are various other claims, lawsuits and pending actions
against us incidental to our operations. It is our opinion 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. See Part II,
Item 1, Legal Proceedings, in this
Form 10-K
for further discussion of our material legal matters.
We may incur material litigation, regulatory or operational
costs or expenses, and may be frustrated in our marketing
efforts, as a result of new environmental regulations or private
intellectual property enforcement disputes. We already
operate in or may expand into markets which could subject us to
environmental laws that may have a material adverse effect on
our business, including the European Union Waste Electrical and
Electronic Equipment Directive as enacted by individual European
Union countries and other similar legislation adopted in
California, which make producers of electrical goods, including
computers and printers, responsible for collection, recycling,
treatment and disposal of recovered products. We may also be
prohibited from marketing products, could be forced to market
products without desirable features, or could incur substantial
costs to defend legal actions, including where third parties
claim that we or vendors who may have indemnified us are
infringing upon their intellectual property rights. In recent
years, individuals and groups have begun purchasing intellectual
property assets for the sole purpose of making claims of
infringement and attempting to extract settlements from target
companies. Even if we believe that the claims are without merit,
the claims can be time-consuming and costly to defend and divert
managements attention and resources away from our
business. Claims of intellectual property infringement also
might require us to enter into costly settlement or pay costly
damage awards, or face a temporary or permanent injunction
prohibiting us from marketing or selling certain products. Even
if we have an agreement to indemnify us against such costs, the
indemnifying party may be unable or unwilling to uphold its
contractual obligations to us.
Future terrorist or military actions could result in
disruption to our operations or loss of assets in certain
markets or globally. Future terrorist or military actions,
in the U.S. or abroad, could result in destruction or
seizure of assets or suspension or disruption of our operations.
Additionally, such actions could affect the operations of our
suppliers or customers, resulting in loss of access to products,
potential losses on supplier programs, loss of business, higher
losses on receivables or inventory,
and/or other
disruptions in our business, which could negatively affect our
operating results. We do not carry broad insurance covering such
terrorist or military actions, and even if we were to seek such
coverage, the cost would likely be prohibitive.
Failure to retain and recruit key personnel would harm our
ability to meet key objectives. Because of the nature of our
business, which includes (but is not limited to) high volume of
transactions, business complexity, wide
17
geographical coverage, and broad scope of products, suppliers,
and customers, we are dependent in large part on our ability to
retain the services of our key management, sales, IT,
operational, and finance personnel. Our continued success is
also dependent upon our ability to retain and recruit other
qualified employees, including highly skilled technical,
managerial, and marketing personnel, to meet our needs.
Competition for qualified personnel is intense. We may not be
successful in attracting and retaining the personnel we require,
which could have a material adverse effect on our business. In
addition, we have recently reduced our personnel in various
geographies and functions through our restructuring and
outsourcing activities. These reductions could negatively impact
our relationships with our workforce, or make hiring other
employees more difficult. In addition, failure to meet
performance targets for the company may result in reduced levels
of incentive compensation, which may affect our ability to
retain key personnel. Additionally, changes in workforce,
including government regulations, collective bargaining
agreements or the availability of qualified personnel could
disrupt operations or increase our operating cost structure.
We face a variety of risks with outsourcing arrangements.
We have outsourced various transaction-oriented service and
support functions in North America to a leading global business
process outsource provider outside the United States. We have
also outsourced a significant portion of our IT infrastructure
function and certain IT application development functions to
third-party providers. We may outsource additional functions to
third-party providers. Our reliance on third-party providers to
provide service to us, our customers and suppliers and for our
IT requirements to support our business could result in
significant disruptions and costs to our operations, including
damaging our relationships with our suppliers and customers, if
these third-party providers do not meet their obligations to
adequately maintain an appropriate level of service for the
outsourced functions or fail to adequately support our IT
requirements. As a result of our outsourcing activities, it may
also be more difficult to recruit and retain qualified employees
for our business needs.
Changes in accounting rules could adversely affect our future
operating results. Our consolidated financial statements are
prepared in accordance with U.S. generally accepted
accounting principles. These principles are subject to
interpretation by various governing bodies, including the FASB
and the SEC, who create and interpret appropriate accounting
standards. Future periodic assessments required by current or
new accounting standards may result in additional non-cash
charges
and/or
changes in presentation or disclosure. A change from current
accounting standards could have a significant adverse effect on
our financial position or results of operations.
Our quarterly results have fluctuated significantly. Our
quarterly operating results have fluctuated significantly in the
past and will likely continue to do so in the future as a result
of:
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general deterioration in economic or geopolitical conditions,
including changes in legislation and regulatory environments in
which we operate;
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competitive conditions in our industry, which may impact the
prices charged and terms and conditions imposed by our suppliers
and/or
competitors and the prices we charge our customers, which in
turn may negatively impact our revenues
and/or gross
margins;
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seasonal variations in the demand for our products and services,
which historically have included lower demand in Europe during
the summer months, worldwide pre-holiday stocking in the retail
channel during the September-to-December period and the seasonal
increase in demand for our North American fee-based logistics
related services in the fourth quarter, which affects our
operating expenses and margins;
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changes in product mix, including entry or expansion into new
markets, as well as the exit or retraction of certain business;
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the impact of and possible disruption caused by reorganization
actions and efforts to improve our IT capabilities, as well as
the related expenses
and/or
charges;
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currency fluctuations in countries in which we operate;
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variations in our levels of excess inventory and doubtful
accounts, and changes in the terms of vendor-sponsored programs
such as price protection and return rights;
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changes in the level of our operating expenses;
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18
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the impact of acquisitions we may make;
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the loss or consolidation of one or more of our major suppliers
or customers;
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product supply constraints; and
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interest rate fluctuations
and/or
credit market volatility, which may increase our borrowing costs
and may influence the willingness or ability of customers and
end-users to purchase products and services.
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These historical variations in our business may not be
indicative of future trends in the near term, particularly in
the light of the current weak global economic environment. Our
narrow operating margins may magnify the impact of the foregoing
factors on our operating results. We believe that you should not
rely on period-to-period comparisons of our operating results as
an indication of future performance. In addition, the results of
any quarterly period are not indicative of results to be
expected for a full fiscal year.
We are dependent on third-party shipping companies for the
delivery of our products. We rely almost entirely on
arrangements with third-party shipping and freight forwarding
companies for the delivery of our products. The termination of
our arrangements with one or more of these third-party shipping
companies, or the failure or inability of one or more of these
third-party shipping companies to deliver products from
suppliers to us or products from us to our reseller customers or
their end-user customers, could disrupt our business and harm
our reputation and operating results.
19
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ITEM 1B.
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UNRESOLVED
STAFF COMMENTS
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None.
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.
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ITEM 3.
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LEGAL
PROCEEDINGS
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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 managements 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 could make adjustments to the initial assessment
including assessments for the 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 administrative 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.
20
In May 2007, we received a Wells Notice from the
SEC, which indicated that the SEC staff intends to recommend an
administrative proceeding against the company seeking
disgorgement and prejudgment interest, though no dollar amounts
were specified in the notice. The staff contends that the
company failed to maintain adequate books and records relating
to certain of our transactions with McAfee Inc. (formerly
Network Associates, Inc.), and was a cause of McAfees own
securities-laws violations relating to the filing of reports and
maintenance of books and records. During the second quarter of
2007, we recorded a reserve of $15.0 million for the
current best estimate of the probable loss associated with this
matter based on discussions with the SEC staff concerning the
issues raised in the Wells Notice. No resolution with the SEC
has been reached at this point, however, and there can be no
assurance that such discussions will result in a resolution of
these issues. When the matter is resolved, the final disposition
and the related cash payment may exceed the current accrual for
the best estimate of probable loss. At this time, it is also not
possible to accurately predict the timing of a resolution. We
have responded to the Wells Notice and continue to cooperate
fully with the SEC on this matter, which was first disclosed
during the third quarter of 2004.
We and one of our subsidiaries are defendants in two separate
lawsuits arising out of the bankruptcy of Refco, Inc., and its
subsidiaries and affiliates (collectively, Refco).
Both actions are currently pending in the U.S. District
Court for the Southern District of New York. In August 2007, the
trustee of the Refco Litigation Trust filed suit against Grant
Thornton LLP, Mayer Brown Rowe & Maw, LLP, Phillip
Bennett, and numerous other individuals and entities (the
Kirschner action), claiming damage to the bankrupt
Refco entities in the amount of $2 billion. Of its
forty-four claims for relief, the Kirschner action contains a
single claim against us and our subsidiary, alleging that loan
transactions between the subsidiary and Refco in early 2000 and
early 2001 aided and abetted the common law fraud of Bennett and
other defendants, resulting in damage to Refco in August 2004
when it effected a leveraged buyout in which it incurred
substantial new debt while distributing assets to Refco
insiders. In March 2008, the liquidators of numerous Cayman
Island-based hedge funds filed suit (the Krys
action) against many of the same defendants named in the
Kirschner action, as well as others. The Krys action alleges
that we and our subsidiary aided and abetted the fraud and
breach of fiduciary duty of Refco insiders and others by
participating in the above loan transactions, causing damage to
the hedge funds in an unspecified amount. We intend to
vigorously defend these cases and do not expect the final
disposition of either to have a material adverse effect on our
consolidated financial position, results of operations, or cash
flows.
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ITEM 4.
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SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
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No matters were submitted to a vote of security holders during
the fourth quarter of the fiscal year covered by this report,
through the solicitation of proxies or otherwise.
21
PART II
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ITEM 5.
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MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
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Common Stock. Our Common Stock is traded on
the New York Stock Exchange under the symbol IM. The following
table sets forth the high and low price per share, based on
closing price, of our Common Stock for the periods indicated.
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HIGH
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LOW
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Fiscal Year 2008
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First Quarter
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$
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18.97
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$
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14.97
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Second Quarter
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18.90
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15.83
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Third Quarter
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19.95
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16.51
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Fourth Quarter
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16.20
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9.29
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Fiscal Year 2007
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First Quarter
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$
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20.78
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$
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18.64
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Second Quarter
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22.02
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19.28
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Third Quarter
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21.97
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18.26
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Fourth Quarter
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21.24
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18.10
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As of February 2, 2009 there were 442 holders of record of
our Common Stock. Because many of such shares are held by
brokers and other institutions, on behalf of shareowners, we are
unable to estimate the total number of shareowners represented
by these record holders.
Dividend Policy. We have neither declared nor
paid any dividends on our Common Stock in the preceding two
fiscal years. We currently intend to retain future earnings to
fund ongoing operations and finance the growth and development
of our business and, therefore, do not anticipate declaring or
paying cash dividends on our Common Stock for the foreseeable
future. Any future decision to declare or pay dividends will be
at the discretion of the Board of Directors and will be
dependent upon our financial condition, results of operations,
capital requirements, and such other factors as the Board of
Directors deems relevant. In addition, certain of our debt
facilities contain restrictions on the declaration and payment
of dividends.
Equity Compensation Plan Information. The
following table provides information, as of January 3,
2009, with respect to equity compensation plans under which
equity securities of our company are authorized for issuance,
aggregated as follows: (i) all compensation plans
previously approved by our shareowners and (ii) all
compensation plans not previously approved by our shareowners.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c) Number of securities
|
|
|
|
|
|
|
|
|
|
remaining available for
|
|
|
|
(a) Number of securities to be
|
|
|
(b) Weighted-average
|
|
|
future issuance under
|
|
|
|
issued upon exercise of
|
|
|
exercise price of
|
|
|
equity compensation plans
|
|
|
|
outstanding options,
|
|
|
outstanding options,
|
|
|
(excluding securities
|
|
Plan Category
|
|
warrants and rights(1)
|
|
|
warrants and rights(1)
|
|
|
reflected in column (a))(2)
|
|
|
Equity compensation plans approved by shareholders
|
|
|
17,458,493
|
|
|
$
|
15.57
|
|
|
|
10,778,890
|
|
Equity compensation plans not approved by shareholders
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
17,458,493
|
|
|
|
NA
|
|
|
|
10,778,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Does not reflect any unvested awards of time vested restricted
stock units/awards of 742,858 and performance vested restricted
stock units of 1,882,681 at 100% target and 4,154,782 at maximum
achievement. |
|
(2) |
|
Balance reflects shares available to issue, taking into account
granted options, time vested restricted stock units/awards and
performance vested restricted stock units assuming maximum
achievement. |
22
Share Repurchase Program. The following table
provides information about our monthly share repurchase activity
from inception of the program through January 3, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuer Purchases of Equity Securities
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
Approximate Dollar
|
|
|
|
Total
|
|
|
|
|
|
Shares Purchased
|
|
|
Value of Shares
|
|
|
|
Number
|
|
|
Average
|
|
|
as Part of Publicly
|
|
|
that May Yet Be
|
|
|
|
of Shares
|
|
|
Price Paid
|
|
|
Announced
|
|
|
Purchased Under
|
|
Fiscal Month Period
|
|
Purchased
|
|
|
Per Share
|
|
|
Program(1)
|
|
|
the Program
|
|
|
November 3 November 23, 2007
|
|
|
482,300
|
|
|
$
|
19.67
|
|
|
|
482,300
|
|
|
$
|
290,511,389
|
|
November 24 December 29, 2007
|
|
|
819,191
|
|
|
|
19.01
|
|
|
|
1,301,491
|
|
|
|
274,939,364
|
|
December 30 January 26, 2008
|
|
|
735,300
|
|
|
|
17.24
|
|
|
|
2,036,791
|
|
|
|
262,260,268
|
|
January 27 February 23, 2008
|
|
|
1,566,000
|
|
|
|
16.77
|
|
|
|
3,602,791
|
|
|
|
236,000,236
|
|
February 24 March 29, 2008
|
|
|
2,996,200
|
|
|
|
15.91
|
|
|
|
6,598,991
|
|
|
|
188,345,086
|
|
March 30 April 26, 2008
|
|
|
908,700
|
|
|
|
16.22
|
|
|
|
7,507,691
|
|
|
|
173,601,428
|
|
April 27 May 24, 2008
|
|
|
1,466,900
|
|
|
|
17.38
|
|
|
|
8,974,591
|
|
|
|
148,100,170
|
|
May 25 June 28, 2008
|
|
|
414,200
|
|
|
|
18.07
|
|
|
|
9,388,791
|
|
|
|
140,615,982
|
|
June 29 July 26, 2008
|
|
|
751,700
|
|
|
|
17.33
|
|
|
|
10,140,491
|
|
|
|
127,586,785
|
|
July 27 August 23, 2008
|
|
|
338,700
|
|
|
|
18.79
|
|
|
|
10,479,191
|
|
|
|
121,222,789
|
|
August 24 September 27, 2008
|
|
|
878,600
|
|
|
|
17.54
|
|
|
|
11,357,791
|
|
|
|
105,815,808
|
|
September 28 October 25, 2008
|
|
|
3,550,000
|
|
|
|
13.60
|
|
|
|
14,907,791
|
|
|
|
57,519,748
|
|
October 26 November 22, 2008
|
|
|
400,000
|
|
|
|
12.32
|
|
|
|
15,307,791
|
|
|
|
52,592,768
|
|
November 23 January 3, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In November 2007, our Board of Directors authorized a share
repurchase program, through which the company may purchase up to
$300 million of its outstanding shares of common stock,
over a three-year period. Under the program, the company may
repurchase shares in the open market and through privately
negotiated transactions. The repurchases will be 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. Through January 3, 2009, we
purchased 15,307,791 shares of our common stock for an
aggregate cost of $247.4 million.
|
|
|
(1) |
|
The Company has, and may continue from time to time, to effect
open market purchases during open trading periods and open
market purchases through 10b5-1 plans, which allows a company to
repurchase its shares at times when it otherwise might be
prevented from doing so under insider trading laws or because of
self-imposed trading blackout periods. |
23
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA
|
SELECTED
CONSOLIDATED FINANCIAL DATA
The following table presents our selected consolidated financial
data, which includes the results of operations of our
acquisitions that have been consolidated with our results of
operations beginning on their acquisition dates. The information
set forth below should be read in conjunction with
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations and the
historical consolidated financial statements and notes thereto,
included elsewhere in this Annual Report on
Form 10-K.
Our fiscal year is a 52-week or 53-week period ending on the
Saturday nearest to December 31. References below to 2008,
2007, 2006, 2005, and 2004 represent the fiscal years ended
January 3, 2009 (53-weeks), December 29, 2007
(52-weeks), December 30, 2006 (52-weeks), December 31,
2005 (52-weeks) and January 1, 2005 (52-weeks),
respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
($ in thousands, except per share data)
|
|
|
Selected Operating Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
34,362,152
|
|
|
$
|
35,047,089
|
|
|
$
|
31,357,477
|
|
|
$
|
28,808,312
|
|
|
$
|
25,462,071
|
|
Gross profit(1)
|
|
|
1,940,091
|
|
|
|
1,909,298
|
|
|
|
1,685,285
|
|
|
|
1,574,978
|
|
|
|
1,402,042
|
|
Income (loss) from operations(2)
|
|
|
(332,169
|
)
|
|
|
446,420
|
|
|
|
422,444
|
|
|
|
362,186
|
|
|
|
283,367
|
|
Income (loss) before income taxes(3)
|
|
|
(382,138
|
)
|
|
|
385,238
|
|
|
|
367,333
|
|
|
|
301,937
|
|
|
|
263,276
|
|
Net income (loss)(4)
|
|
|
(394,921
|
)
|
|
|
275,908
|
|
|
|
265,766
|
|
|
|
216,906
|
|
|
|
219,901
|
|
Basic earnings per share net income (loss)
|
|
|
(2.37
|
)
|
|
|
1.61
|
|
|
|
1.61
|
|
|
|
1.35
|
|
|
|
1.41
|
|
Diluted earnings per share net income (loss)
|
|
|
(2.37
|
)
|
|
|
1.56
|
|
|
|
1.56
|
|
|
|
1.32
|
|
|
|
1.38
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
166,542,541
|
|
|
|
171,640,569
|
|
|
|
165,414,176
|
|
|
|
160,262,465
|
|
|
|
155,451,251
|
|
Diluted
|
|
|
166,542,541
|
|
|
|
176,951,694
|
|
|
|
170,875,794
|
|
|
|
164,331,166
|
|
|
|
159,680,040
|
|
Selected Balance Sheet Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
763,495
|
|
|
$
|
579,626
|
|
|
$
|
333,339
|
|
|
$
|
324,481
|
|
|
$
|
398,423
|
|
Total assets
|
|
|
7,083,473
|
|
|
|
8,975,001
|
|
|
|
7,704,307
|
|
|
|
7,034,990
|
|
|
|
6,926,737
|
|
Total debt(5)
|
|
|
478,388
|
|
|
|
523,116
|
|
|
|
509,507
|
|
|
|
604,867
|
|
|
|
514,832
|
|
Stockholders equity
|
|
|
2,655,845
|
|
|
|
3,426,942
|
|
|
|
2,920,475
|
|
|
|
2,438,598
|
|
|
|
2,240,810
|
|
|
|
|
(1) |
|
Fiscal 2008 includes a reduction in costs of sales of $8,224 for
the release of a portion of the commercial tax reserve in
Brazil. Fiscal 2007 includes a net charge to costs of sales of
$30,134 related to a reserve recorded for certain commercial
taxes in Brazil. |
|
(2) |
|
Includes: (i) a charge for the impairment of goodwill of
$742,653 in 2008; (ii) reorganization costs of $17,029 and
$16,276 in 2008 and 2005, respectively; (iii), other
major-program costs associated with the reorganization
activities totaling $1,544 and $22,935, charged to selling,
general and administrative expenses, or SG&A expenses, in
2008 and 2005, respectively; (iv) credit adjustments to
reorganization costs of $1,091, $1,727 and $2,816 in 2007, 2006
and 2004, respectively, for previous actions; (v) a charge
to SG&A expenses in 2007 related to a reserve of $15,000
for estimated losses associated with the SEC matter regarding
certain transactions with McAfee, Inc. (formerly NAI) from 1998
through 2000; and (vi) a reduction to SG&A expenses in
2007 related to a gain of $2,859 from the sale of our Asian
semiconductor business. Fiscal 2008, 2007 and 2006 also includes
$14,845, $37,875 and $28,875, respectively, of stock-based
compensation expense resulting from the 2006 adoption of
Statement of Financial Accounting Standards No. 123
(revised 2004) Share-Based Payment. |
|
(3) |
|
Includes items noted in footnotes (1) and (2) above,
as well as a loss of $8,413 on the redemption of senior
subordinated notes in 2005 and a gain on forward currency hedge
of $23,120 in 2004 related to our Australian dollar denominated
acquisition of Tech Pacific. |
24
|
|
|
(4) |
|
Includes the after-tax impact of items noted in footnotes
(1) through (3) above, as well as the reversal of
deferred tax liabilities of $801, $2,385 and $41,078 in 2006,
2005 and 2004, respectively, related to the gains on sale of
available-for-sale securities. |
|
(5) |
|
Includes trade accounts receivable-backed financing and
revolving accounts receivable factoring facilities, senior
unsecured term loan, revolving credit facilities and other
long-term debt including current maturities, but excludes
off-balance sheet debt of $68,505 at the end of fiscal year
2006, which amounts represent the undivided interests in
transferred accounts receivable sold to and held by third
parties. |
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Overview
of Our Business
Sales
We are the largest distributor of IT products and services
worldwide based on net sales. We offer a broad range of IT
products and services and help generate demand and create
efficiencies for our customers and suppliers around the world.
Our results of operations have been directly affected by the
conditions in the economy in general. Our net sales grew from
$25.5 billion in 2004 to a record high of
$35.0 billion in 2007, with annual sales growth ranging
from nine percent to thirteen percent. These increases primarily
reflected the improving demand environment for IT products and
services in most economies worldwide as well as the additional
revenue arising from the integration of numerous acquisitions
worldwide, such as Techpac Holdings Limited, or Tech Pacific, in
2004, AVAD in 2005, DBL Distributing Inc., or DBL, in 2007 and a
number of small but strategic acquisitions of businesses in
automatic identification and data capture/point-of-sale, or
AIDC/POS, and network security. Also contributing to the growth
trend over this period were the addition of new product
categories and suppliers, the addition and expansion of adjacent
product lines and services, the addition of new customers and
increased sales to our existing customer base. In 2008, our net
sales declined 2.0% to $34.4 billion despite the relative
year-over-year strength of foreign currencies, which provided
approximately two percentage-points of growth. The decline
reflects our efforts to exit or turn away certain unprofitable
business relationships during the year, as well as the severe
downturn in the macroeconomic environment, which began in early
2008 in Europe and North America but began to adversely impact
Asia Pacific and Latin America as the year progressed. This
economic downturn is expected to continue through the balance of
2009. We expect these conditions will continue to negatively
affect our revenues and profitability over the near term but the
severity of the impacts could be exacerbated by worsening
economic conditions over an extended period in the major markets
in which we operate, more intense competitive pricing pressures,
and/or the
expansion of a direct sales strategy by one or more of our major
vendors.
Gross
Margin
The IT distribution industry in which we operate is
characterized by narrow gross profit as a percentage of net
sales (gross margin) and narrow income from
operations as a percentage of net sales (operating
margin). Historically, our margins have been negatively
impacted by extensive price competition, as well as changes in
vendor terms and conditions, including, but not limited to,
reductions in vendor rebates and incentives, tighter
restrictions on our ability to return inventory to vendors and
reduced time periods qualifying for vendor price protection. To
mitigate these factors, we have implemented, and continue to
refine, changes to our pricing strategies, inventory management
processes and vendor program processes. We continuously monitor
and change, as appropriate, certain of the terms and conditions
offered to our customers to reflect those being set by our
vendors. In addition, we have pursued expansion into adjacent
product markets such as AIDC/POS and consumer electronics and
related products and accessories, which generally have higher
gross margins, and into certain service categories, including
our Ingram Micro Logistics fee-for-service business. While these
dynamics have kept our overall gross margin relatively stable,
near or above 5.40% on an annual basis since 2003, the shift in
overall mix of business toward our more profitable adjacent
businesses and growth in our fee-for-service business, coupled
with efforts to exit or turn away certain unprofitable business
relationships during 2008, helped to yield our highest gross
margin level since 1998. We expect that restrictive vendor terms
and conditions and competitive pricing pressures will continue
and may possibly worsen in the foreseeable future if the current
economic downturn continues, which will hinder our ability to
maintain
and/or
improve our gross margins or overall profitability from the
levels realized in recent years.
25
Selling,
General and Administrative Expenses or SG&A
Expenses
Another key area for our overall profitability management is the
monitoring and control of the level of SG&A expenses. As
the various factors discussed above have impacted our levels of
sales over the past several years, we have instituted a number
of cost reduction and profit enhancement programs. Among other
things, these efforts have included our announced outsourcing
and optimization plan in North America in 2005, our outsourcing
of IT application development functions in 2006 and a number of
other reorganization actions across multiple regions to further
enhance productivity and profitability. Additionally, we have
completed numerous acquisitions to add to our traditional
distribution business over the past several years. While these
acquisitions increase our revenues and market share, they also
represent opportunities to streamline and realize operational
synergies from the combined operations. We have also made
acquisitions to increase our presence in adjacent product
offerings, such as AIDC/POS, in addition to organic growth of
other adjacent lines, such as our fee-for-service logistics
business. While these lines of business generally carry higher
gross margins, as discussed above, they also generally carry a
higher level of SG&A expenses. The combination of these
factors, along with continued revenue growth, has generally
yielded a trend of reduced SG&A expenses as a percentage of
revenues in recent years. However, in 2008, our SG&A
expenses increased to 4.40% of net sales from 4.18% in the prior
year, as the rapid decline in net sales exceeded the rate at
which we could reduce costs in the short term. As a result of
the declining net sales, we implemented a number of
expense-reduction programs, resulting in the rationalization and
re-engineering of certain roles and processes and targeted
reduction of headcount, primarily in EMEA and North America, and
have announced additional programs to be implemented in 2009. We
continue to pursue and implement business process improvements,
IT systems enhancements and organizational changes to create
sustained cost reductions without sacrificing customer service
over the long-term. Implementation of other actions, including
integration of acquisitions in the future, if any, could result
in additional costs as well as additional operating income
improvements.
Reorganization
and Expense-Reduction Program Costs
In 2005, we incurred integration expenses of $12.7 million
related to our acquisition of Tech Pacific, comprised of
$6.7 million of reorganization costs primarily for employee
termination benefits, facility exit costs and other contract
termination costs for associates and facilities of Ingram Micro
made redundant by the acquisition as well as $6.0 million
of other costs charged to SG&A primarily for consulting,
retention and other expenses related to the integration of Tech
Pacific (see Note 3 to our consolidated financial
statements). We substantially completed the integration of the
operations of our pre-existing Asia-Pacific business with Tech
Pacific in the third quarter of 2005. In 2005, we also announced
an outsourcing and optimization plan to improve operating
efficiencies within our North American region. The plan, which
was completed by 2006, included an outsourcing arrangement that
moved transaction-oriented service and support functions in our
North America operations including selected
functions in finance and shared services, customer service,
vendor management, technical support and inside sales (excluding
field sales and management positions) to a leading
global business process outsource provider. As part of the plan,
we also restructured and consolidated other job functions within
the North American region. Total costs of the actions, or
major-program costs, incurred in 2005 were $26.6 million
($9.7 million of reorganization costs, primarily for
workforce reductions and facility exit costs, as well as
$16.9 million of other costs charged to SG&A primarily
for consulting, retention and other expenses).
In 2006, we incurred approximately $10.3 million of
incremental technology enhancement costs primarily associated
with our decision to outsource certain IT application
development functions to a leading global IT outsource service
provider, which we believe will improve our capabilities and
more effectively manage costs over the long-term. Most of the
expenses incurred were for separation costs and other transition
expenses, as well as for expenditures related to improving our
existing systems.
Starting in the second quarter of 2008, we announced
cost-reduction programs, resulting in the rationalization and
re-engineering of certain roles and processes primarily at the
regional headquarters in EMEA and targeted reductions of
primarily administrative and back-office positions in North
America. Total costs of the actions incurred in EMEA were
$16.4 million, comprised of $14.9 million of
reorganization costs related to employee termination benefits
for workforce reductions and facility consolidations, as well as
$1.5 million of other costs charged to SG&A expenses,
comprised of consulting, legal and other expenses associated
with implementing the reduction in workforce. In North America,
the net costs of the actions were $1.8 million, all of
which were
26
reorganization costs primarily related to employee termination
benefits for workforce reductions and other costs related to
contract terminations for equipment leases. During the third
quarter of 2008, we also announced cost-reduction programs
related to our Asia-Pacific operations, incurring reorganization
costs of $0.3 million, primarily related to employee
termination benefits.
As most economists expect the current economic downturn to last
through most of 2009 and potentially beyond, we continue to make
adjustments to improve profitability and position us for the
future. We are taking additional actions in 2009 to ensure our
expenses remain aligned with declines in sales volume, including
further restructuring actions in Europe and North America. These
actions are expected to generate savings of approximately
$100 million to $120 million annually, reaching the
full run-rate by the time we exit 2009. Total restructuring and
other related costs associated with these actions are expected
to range from approximately $45 million to $65 million.
Acquisitions
We have complemented our internal growth initiatives with
strategic business acquisitions including our acquisitions over
the past five years of the distribution businesses of Eurequat
SA, Intertrade A.F. AG, Paradigm Distribution Ltd. and Symtech
Nordic AS in EMEA, the Cantechs Group in Asia-Pacific and Nimax
in North America, each of which expanded our value-added
distribution of mobile data and AIDC/POS solutions; AVAD, the
leading distributor for solution providers and custom installers
serving the home automation and entertainment market in the
U.S.; DBL, a leading distributor of consumer electronics
accessories in the U.S.; VPN Dynamics and Securematics, which
expanded our networking product and services offerings in the
U.S.; and Tech Pacific, one of Asia-Pacifics largest
technology distributors.
Working
Capital and Debt
The IT products and services distribution business is working
capital intensive. Our business requires significant levels of
working capital primarily to finance accounts receivable and
inventories. However, our business generally requires less
financing during an economic downturn because of reduced working
capital demands. We have relied heavily on trade credit from
vendors, accounts receivable financing programs and debt
facilities for our working capital needs. Due to our narrow
operating margins, we maintain a strong focus on management of
working capital and cash provided by operations, as well as our
debt levels. However, our debt levels may fluctuate
significantly on a day-to-day basis due to timing of customer
receipts and periodic payments to vendors. Our future debt
requirements may increase to support growth in our overall level
of business, changes in our required working capital profile, or
to fund acquisitions or other investments in the business.
Our
Critical Accounting Policies and Estimates
The discussions and analyses of our consolidated financial
condition and results of operations are based on our
consolidated financial statements, which have been prepared in
conformity with accounting principles generally accepted in the
U.S. The preparation of these financial statements requires
us to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of significant
contingent assets and liabilities at the financial statement
date, and reported amounts of revenue and expenses during the
reporting period. On an ongoing basis, we review and evaluate
our estimates and assumptions, including, but not limited to,
those that relate to accounts receivable; vendor programs;
inventories; goodwill, intangible and other long-lived assets;
income taxes; and contingencies and litigation. Our estimates
are based on our historical experience and a variety of other
assumptions that we believe to be reasonable under the
circumstances, the results of which form the basis for making
our judgment about the carrying values of assets and liabilities
that are not readily available from other sources. Although we
believe our estimates, judgments and assumptions are appropriate
and reasonable based upon available information, these
assessments are subject to a wide range of sensitivity.
Therefore, actual results could differ from these estimates.
We believe the following critical accounting policies are
affected by our judgments, estimates
and/or
assumptions used in the preparation of our consolidated
financial statements.
27
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|
|
|
|
Accounts Receivable We provide allowances for
doubtful accounts on our accounts receivable for estimated
losses resulting from the inability of our customers to make
required payments. Changes in the financial condition of our
customers or other unanticipated events, which may affect their
ability to make payments, could result in charges for additional
allowances exceeding our expectations. Our estimates are
influenced by the following considerations: the large number of
customers and their dispersion across wide geographic areas; the
fact that no single customer accounts for 10% or more of our net
sales; a continuing credit evaluation of our customers
financial condition; aging of receivables, individually and in
the aggregate; credit insurance coverage; the value and adequacy
of collateral received from our customers in certain
circumstances; our historical loss experience; and increases in
credit risk resulting from an economic downturn and resulting
decline in capital availability to customers.
|
|
|
|
Vendor Programs We receive funds from vendors
for price protection, product rebates, marketing/promotion,
infrastructure reimbursement and meet-competition programs,
which are recorded as adjustments to product costs, revenue, or
SG&A expenses according to the nature of the program. Some
of these programs may extend over more than one quarterly
reporting period. We accrue rebates or other vendor incentives
as earned based on sales of qualifying products or as services
are provided in accordance with the terms of the related
program. Actual rebates may vary based on volume or other sales
achievement levels, which could result in an increase or
reduction in the estimated amounts previously accrued. We also
provide reserves for receivables on vendor programs for
estimated losses resulting from vendors inability to pay
or rejections of claims by vendors.
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|
|
|
|
|
Inventories Our inventory levels are based on
our projections of future demand and market conditions. Any
sudden decline in demand
and/or rapid
product improvements and technological changes could cause us to
have excess
and/or
obsolete inventories. On an ongoing basis, we review for
estimated excess or obsolete inventories and write down our
inventories to their estimated net realizable value based upon
our forecasts of future demand and market conditions. If actual
market conditions are less favorable than our forecasts,
additional inventory write-downs may be required. Our estimates
are influenced by the following considerations: protection from
loss in value of inventory under our vendor agreements; our
ability to return to vendors only a certain percentage of our
purchases as contractually stipulated; aging of inventories; a
sudden decline in demand due to an economic downturn; and rapid
product improvements and technological changes.
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|
|
|
|
|
Goodwill, Intangible Assets and Other Long-Lived
Assets We apply the provisions of Statement of
Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets, or FAS 142, in our
evaluation of goodwill and other intangible assets. FAS 142
eliminates the requirement to amortize goodwill, but requires
that goodwill be reviewed at least annually for potential
impairment.
|
In the fourth quarter of 2008, consistent with the drastic
decline in the capital markets in general, we experienced a
similar decline in the market value of our stock. As a result,
our market capitalization was significantly lower than our book
value. Our reporting units under FAS 142 are our regional
operating segments. While the Latin America region does not have
any goodwill, we conducted goodwill impairment tests in each of
our other regional reporting units during the fourth quarter of
2008, which coincides with the timing of our normal annual
impairment test. In performing this test, we, among other
things, consulted an independent valuation advisor.
In accordance with FAS 142, we used a two step process to
test for goodwill impairment. The first step is to determine if
there is an indication of impairment by comparing the estimated
fair value of each reporting unit to its carrying value
including existing goodwill. Goodwill is considered impaired if
the carrying value of a reporting unit exceeds the estimated
fair value. We utilized a combination of income and market
approaches to estimate the fair value of our reporting units in
the first step.
The income approach utilizes estimates of discounted cash flows
of the reporting units, which requires assumptions of, among
other things, the reporting units expected long-term
revenue trends, as well as estimates of profitability, changes
in working capital and long-term discount rates, all of which
require significant judgment. The income approach also requires
the use of appropriate discount rates that take into account the
current risks in the capital markets. The market approach
evaluates comparative market multiples applied to our reporting
units businesses to yield a second assumed value of each
reporting unit.
28
We compared a weighted average of the output from the income and
market approaches to the carrying value of each reporting unit,
which yielded an indication of impairment in each of the North
America, EMEA and Asia-Pacific reporting units. We also compared
the aggregate of the estimated fair values of each of our four
regional reporting units to our overall market capitalization,
taking into account an acceptable control premium considered
supportable based upon historical comparable transactions.
Step two of the impairment test requires us to compute a fair
value of the assets and liabilities, including identifiable
intangible assets, within each of the three reporting units with
indications of impairment, and compare the implied fair value of
goodwill to its carrying value. The results of step two
indicated that the goodwill for each of the North America, EMEA
and Asia Pacific reporting units was fully impaired. As a
result, we recorded a charge of $742.6 million in the
fourth quarter of 2008, which is made up of $243.2 million,
$24.1 million and $475.3 million in carrying value of
goodwill prior to the impairment in North America, EMEA and
Asia-Pacific, respectively. This non-cash charge materially
impacted our equity and results of operations in 2008, but does
not impact our ongoing business operations, liquidity, cash flow
or compliance with covenants for our credit facilities.
We also assess potential impairment of our other identifiable
intangible assets and other long-lived assets when there is
evidence that recent events or changes in circumstances such as
significant changes in the manner of use of the asset, negative
industry or economic trends, and significant underperformance
relative to historical or projected future operating results,
have made recovery of an assets carrying value unlikely.
The amount of an impairment loss would be recognized as the
excess of the assets carrying value over its fair value.
We conducted impairment tests of our intangible assets and other
long-lived assets in the fourth quarter of 2008. Our results
indicated that the carrying value of these assets was
recoverable from undiscounted cash flows and no impairment was
indicated.
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|
|
|
|
Income Taxes As part of the process of
preparing our consolidated financial statements, we estimate our
income taxes in each of the taxing jurisdictions in which we
operate. This process involves estimating our actual current tax
expense together with assessing any temporary differences
resulting from the different treatment of certain items, such as
the timing for recognizing revenues and expenses for tax and
financial reporting purposes. These differences may result in
deferred tax assets and liabilities, which are included in our
consolidated balance sheet. We are required to assess the
likelihood that our deferred tax assets, which include net
operating loss carryforwards, tax credits and temporary
differences that are expected to be deductible in future years,
will be recoverable from future taxable income. In making that
assessment, we consider future market growth, forecasted
earnings, future taxable income, the mix of earnings in the
jurisdictions in which we operate and prudent and feasible tax
planning strategies. If, based upon available evidence, recovery
of the full amount of the deferred tax assets is not likely, we
provide a valuation allowance on any amount not likely to be
realized. Our effective tax rate includes the impact of not
providing U.S. taxes on undistributed foreign earnings
considered indefinitely reinvested. Material changes in our
estimates of cash, working capital and long-term investment
requirements in the various jurisdictions in which we do
business could impact our effective tax rate.
|
The provision for tax liabilities and recognition of tax
benefits involves evaluations and judgments of uncertainties in
the interpretation of complex tax regulations by various taxing
authorities. In situations involving uncertain tax positions
related to income tax matters, we do not recognize benefits
unless it is more likely than not that they will be sustained.
As additional information becomes available, or these
uncertainties are resolved with the taxing authorities,
revisions to these liabilities or benefits may be required,
resulting in additional provision for or benefit from income
taxes reflected in our consolidated statement of income.
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|
|
|
|
Contingencies and Litigation There are
various claims, lawsuits and pending actions against us,
including those noted in Item 3. If a loss arising from
these actions is probable and can be reasonably estimated, we
record the amount of the estimated loss. If the loss is
estimated using a range within which no point is more probable
than another, the minimum estimated liability is recorded. As
additional information becomes available, we assess any
potential liability related to these actions and may need to
revise our estimates. Ultimate resolution of these matters could
materially impact our consolidated results of operations, cash
flows or financial position (see Note 10 to our
consolidated financial statements).
|
29
Results
of Operations
We do not allocate stock-based compensation recognized (see
Notes 11 and 12 to our consolidated financial statements)
to our operating units; therefore, we are reporting this as a
separate amount. The following tables set forth our net sales by
geographic region and the percentage of total net sales
represented thereby, as well as operating income and operating
margin by geographic region for each of the fiscal years
indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
($ in millions)
|
|
|
Net sales by geographic region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
14,192
|
|
|
|
41.3
|
%
|
|
$
|
13,923
|
|
|
|
39.7
|
%
|
|
$
|
13,585
|
|
|
|
43.3
|
%
|
EMEA
|
|
|
11,535
|
|
|
|
33.6
|
|
|
|
12,439
|
|
|
|
35.5
|
|
|
|
10,754
|
|
|
|
34.3
|
|
Asia-Pacific
|
|
|
6,905
|
|
|
|
20.1
|
|
|
|
7,133
|
|
|
|
20.4
|
|
|
|
5,537
|
|
|
|
17.7
|
|
Latin America
|
|
|
1,730
|
|
|
|
5.0
|
|
|
|
1,552
|
|
|
|
4.4
|
|
|
|
1,481
|
|
|
|
4.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
34,362
|
|
|
|
100.0
|
%
|
|
$
|
35,047
|
|
|
|
100.0
|
%
|
|
$
|
31,357
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As presented below, our income (loss) from operations in 2008
includes the goodwill impairment charge of $742.6 million
or 2.16% of consolidated net sales ($243.2 million, or
1.71% of sales, in North America; $24.1 million, or 0.21%
of sales, in EMEA; and $475.3 million, or 6.88% of sales,
in Asia-Pacific) as discussed in Notes 2 and 4 to our
consolidated financial statements. Income (loss) from operations
in 2008 also includes reorganization and expense-reduction
program costs of $18.6 million, or 0.05% of consolidated
net sales, ($1.8 million of charges in North America;
$16.4 million of charges in EMEA; and $0.3 million of
charges in Asia-Pacific) as discussed in Note 3. In
addition, our income from operations in Latin America in 2008
includes the release of a portion of our commercial tax reserve
in Brazil totaling $8.2 million, or 0.48% of Latin America
net sales and 0.02% of consolidated net sales, as discussed in
Note 10.
In 2007, our loss from operations in Latin America includes a
net commercial tax charge in Brazil of $30.1 million or
1.94% of Latin American net sales (0.09% of consolidated net
sales) and our income from operations in North America includes
a charge of $15.0 million or 0.11% of North American net
sales (0.04% of consolidated net sales) for estimated losses
related to a SEC matter, both discussed in Note 10.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
($ in millions)
|
|
|
Operating income (loss) and operating margin (loss) by
geographic region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
(49.0
|
)
|
|
|
(0.35
|
)%
|
|
$
|
219.9
|
|
|
|
1.58
|
%
|
|
$
|
225.2
|
|
|
|
1.66
|
%
|
EMEA
|
|
|
42.0
|
|
|
|
0.36
|
|
|
|
151.5
|
|
|
|
1.22
|
|
|
|
126.8
|
|
|
|
1.18
|
|
Asia-Pacific
|
|
|
(353.5
|
)
|
|
|
(5.12
|
)
|
|
|
117.3
|
|
|
|
1.64
|
|
|
|
69.4
|
|
|
|
1.25
|
|
Latin America
|
|
|
43.2
|
|
|
|
2.50
|
|
|
|
(4.4
|
)
|
|
|
(0.28
|
)
|
|
|
29.9
|
|
|
|
2.02
|
|
Stock-based compensation expense
|
|
|
(14.9
|
)
|
|
|
|
|
|
|
(37.9
|
)
|
|
|
|
|
|
|
(28.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(332.2
|
)
|
|
|
(0.97
|
)%
|
|
$
|
446.4
|
|
|
|
1.27
|
%
|
|
$
|
422.4
|
|
|
|
1.35
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We sell products purchased from many vendors, but generated
approximately 23%, 23% and 22% of our net sales in 2008, 2007
and 2006, respectively, from products purchased from
Hewlett-Packard Company. There were no other vendors that
represented 10% or more of our net sales in each of the last
three years.
30
The following table sets forth certain items from our
consolidated statement of income as a percentage of net sales,
for each of the fiscal years indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Net sales
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
Cost of sales
|
|
|
94.35
|
|
|
|
94.55
|
|
|
|
94.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
5.65
|
|
|
|
5.45
|
|
|
|
5.37
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
4.41
|
|
|
|
4.18
|
|
|
|
4.03
|
|
Impairment of goodwill
|
|
|
2.16
|
|
|
|
|
|
|
|
|
|
Reorganization costs (credits)
|
|
|
0.05
|
|
|
|
(0.00
|
)
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(0.97
|
)
|
|
|
1.27
|
|
|
|
1.35
|
|
Other expense, net
|
|
|
0.14
|
|
|
|
0.17
|
|
|
|
0.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(1.11
|
)
|
|
|
1.10
|
|
|
|
1.17
|
|
Provision for income taxes
|
|
|
0.04
|
|
|
|
0.31
|
|
|
|
0.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(1.15
|
)%
|
|
|
0.79
|
%
|
|
|
0.85
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results
of Operations for the Years Ended January 3, 2009,
December 29, 2007 and December 30, 2006
Our consolidated net sales were $34.36 billion,
$35.05 billion and $31.36 billion in 2008, 2007 and
2006, respectively. The decline in our consolidated net sales of
2.0% in 2008 compared to 2007 primarily reflects the overall
decline in demand for technology products and services globally
resulting from the severe economic downturn. The softness in
demand initially surfaced in North America and EMEA early in
2008, and spread to the larger economies of Asia-Pacific in the
second quarter of 2008. By the end of 2008, the weak
macroeconomic environment has spread to substantially all of our
business units in each region. The sluggish demand for
technology products and services is expected to continue, and
may worsen, over the near term. Our proactive steps to walk away
from unprofitable business also had a negative impact on our
worldwide sales growth. These negative trends were partially
offset by the translation impact of the strengthening foreign
currencies versus the U.S. dollar when compared to the
exchange rates in the prior year period, which contributed
approximately two percentage-points of the worldwide growth. The
growth in our consolidated net sales of 11.8% in 2007 compared
to 2006 reflected the robust growth in our Asia-Pacific region,
a continued strong demand environment for IT products and
services across most economies in which we operate globally, the
translation impact of the strengthening foreign currencies
compared to the U.S. dollar (which contributed
approximately five percentage-points to year-over-year growth in
2007) and additional revenue arising from our recent
acquisitions, particularly VPN Dynamics and Securematics in
March 2007 and DBL in June 2007.
Net sales from our North American operations were
$14.19 billion, $13.92 billion and $13.58 billion
in 2008, 2007 and 2006, respectively. The year-over-year growth
trends in North America net sales of 1.9% and 2.5% in 2008 and
2007, respectively, primarily reflects a weakening overall
demand for IT products and services over the three year period,
which became more pronounced in 2008 as the economy in the
region continued to soften. The growth in 2008 was positively
impacted by the revenue contribution of approximately one
percentage-point arising from a full year of operations of the
DBL acquisition, which closed in June 2007, while 2007 was
positively impacted by the acquisitions of VPN Dynamics and
Securematics in March and DBL in June of the same year, which
contributed approximately two percentage-points to the revenue
growth over 2006. Net sales from our EMEA operations were
$11.53 billion, $12.44 billion and $10.75 billion
in 2008, 2007 and 2006. The decline in our EMEA net sales of
7.3% in 2008 compared to 2007 primarily reflects the soft demand
for technology products and services in Europe, our deliberate
actions to exit or turn away unprofitable business and market
reaction to our freight cost recovery efforts, partially offset
by the appreciation of European currencies compared to the
U.S. dollar, which contributed approximately five
percentage-points positive impact compared to 2007. The growth
in our EMEA net sales of 15.7% in 2007 compared to 2006
reflected steady demand for IT products and services in the
region. The appreciation of relatively stronger European
currencies compared to the U.S. dollar contributed
approximately
31
11 percentage-points positive impact compared to the prior
year. Net sales from our Asia-Pacific operations were
$6.90 billion, $7.13 billion and $5.54 billion in
2008, 2007 and 2006, respectively. The decline in our
Asia-Pacific net sales of 3.2% in 2008 compared to 2007 was
attributable to the softer demand for technology products and
services, which began in the larger economies in the region
during the second quarter of 2008 and spread throughout the
region in the second half of 2008, combined with proactive
efforts to exit or turn away unprofitable business in certain
markets. The growth in our Asia-Pacific net sales of 28.8% in
2007 compared to 2006 primarily reflects the strong demand for
IT products and services across the region and the appreciation
of regional currencies compared to the U.S. dollar, which
had an approximately 10 percentage-point positive impact in
2007 over 2006. Net sales from our Latin American operations
were $1.73 billion, $1.55 billion and
$1.48 billion in 2008, 2007 and 2006, respectively. The
year-over-year growth in Latin America net sales of 11.5% and
4.8% in 2008 and 2007, respectively, primarily reflects the
overall solid demand for IT products and services in the region.
However, the impacts of the weakening global economy experienced
in our larger regions in the previous three quarters of 2008
spread to Latin America in the fourth quarter of 2008, and may
intensify in 2009, thereby negatively impacting demand for IT
products and our revenue in the region.
Our gross margin was 5.65% in 2008, 5.45% in 2007 and 5.37% in
2006. The 2008 gross margin includes the positive impact of
$8.2 million, or 0.02% of sales, from a partial release of
our commercial tax reserve in Brazil. The 2007 gross margin
includes a net commercial tax charge in Brazil of
$30.1 million, or 0.09% of sales (see Note 10 to our
consolidated financial statements). Despite a competitive and
overall weak market in 2008, we have continued our focus on
pricing discipline and our more profitable businesses, including
our fee-for-service logistics business, and other enhancements
in gross margin such as our freight recovery program described
below. The slight increase in 2007 compared to 2006 was driven
primarily by the impact of our acquisitions of certain
businesses, such as AVAD and DBL, which have higher gross
margins but also higher operating expenses; and other general
enhancements in gross margin, offset by the net Brazilian
commercial tax charge noted above, and the impact from the
issues with the implementation of our German warehouse
management system in 2006. We continuously evaluate and modify
our pricing policies and certain terms, conditions and credit
offered to our customers to reflect those being imposed by our
vendors and general market conditions. In 2008, we introduced
incremental freight recovery charges to a large portion of our
account base. This initiative commenced during the third quarter
of 2008 and was largely implemented worldwide by the end of the
quarter. We believe this initiative may have negatively impacted
our sales volumes during the second half of 2008 and may
negatively impact our revenue over the near term. Such sales
volume decrease could also have a negative impact on our
volume-based rebates. In this regard, as we continue to evaluate
our existing pricing policies and make modifications or future
changes, if any, we may experience moderated or continued
negative sales growth in the near term, or these modifications
may negatively impact our gross margin. In addition, increased
competition and any further retractions or softness in economies
throughout the world may hinder our ability to maintain
and/or
improve gross margins from the levels realized in recent periods.
Total SG&A expenses were $1.51 billion,
$1.46 billion and $1.26 billion in 2008, 2007 and
2006, respectively. Total SG&A expense as a percentage of
net sales was 4.41%, 4.18% and 4.03% in 2008, 2007 and 2006,
respectively. In 2008, SG&A expenses as a percentage of net
sales increased compared to 2007, primarily due to the decline
in revenues as a result of the downturn in the global economies
in general, which exceeded the rate at which we were able to
reduce costs in the short term. With the downturn in the
macroeconomic environment, we instituted a number of actions
during 2008 to reduce costs. On a global basis, we significantly
reduced discretionary spending in areas such as travel and
professional services, in addition to managing headcount levels
through attrition. Additionally, primarily in North America and
EMEA, where the downturn was most pronounced early in the year,
specific actions were taken to reduce headcount and operating
expenses as further described below. We estimate that these
actions yielded at least $20 million annualized reductions
as we entered 2009, although the 2008 impact is much less due to
the timing with which the actions were completed throughout the
year. Also, driving the year-over-year increase were: the
investments in strategic initiatives and system enhancements;
higher labor costs related to our growing fee-for-service
logistics business, which also yields a higher gross margin, as
discussed above; and a full year of operating expenses in 2008
from the addition of DBL in June 2007. The translation impact of
foreign currencies also contributed to the growth in SG&A
dollars by approximately $26 million, or approximately two
percentage-points. These factors were partially offset by the
year-over-year reduction of stock-based compensation of
$23.0 million, primarily the result of lower estimated
achievement and payout under our long-term incentive
32
compensation plans which are payable in performance-based
restricted stock units. In 2007, SG&A expenses as a
percentage of net sales increased compared to 2006, primarily
due to the charge of $15.0 million, or 0.04% of net sales
in 2007, to reserve for estimated losses related to the SEC
matter, the increase in stock-based compensation by
$9.0 million year-over-year, the residual costs associated
with the integration and transition of a warehouse management
system upgrade in Germany during the first half of 2007, the
addition of operating expenses primarily from the DBL
acquisition, which generally operates with higher operating
expenses and gross profit as a percentage of net sales compared
to the rest of our business, and investments in other strategic
initiatives. These factors were partially offset by a gain of
$2.9 million from the sale of our Asian semiconductor
business and continued cost control measures throughout our
business. As most economists expect the current economic
downturn to last through most of 2009 and potentially beyond, we
continue to make adjustments to improve profitability and
position us for the future. We are taking additional actions in
2009 to ensure our expenses remain aligned with declines in
sales volume, including, but not limited to, further
restructuring actions in Europe and North America. These actions
are expected to generate savings of approximately
$100 million to $120 million annually, reaching the
full run-rate by the time we exit 2009. Total restructuring and
other related costs associated with these actions are expected
to range from approximately $45 million to
$65 million. We may also pursue further business process
and/or
organizational changes in our business, which may result in
additional charges related to consolidation of facilities,
restructuring of business functions and workforce reductions in
the future; however, any such actions may take time to implement
and savings generated may not match the rate of revenue decline
in any particular period.
As discussed in our critical accounting policies and estimates,
in the fourth quarter of 2008, we recorded a charge of
$742.6 million, or 2.16% of consolidated net sales, for the
full impairment of our goodwill, which consisted of
$243.2 million in North America; $24.1 million in
EMEA; and $475.3 million in Asia-Pacific (also, see
Notes 2 and 4 to our consolidated financial statements).
In 2008, we incurred a net charge for reorganization costs of
$17.0 million, or approximately 0.05% of sales, which
consisted of (a) $14.6 million of employee termination
benefits for workforce reductions associated with the
restructuring of the regional headquarters in EMEA and targeted
reduction of administrative and back-office positions in the
North America and Asia-Pacific regions,
(b) $2.5 million in facility consolidations in EMEA
and (c) $0.4 million for contract terminations for
equipment leases in North America, partially offset by
(d) $0.5 million for the reversal of certain excess
lease obligation reserves from reorganization actions recorded
in earlier years. In 2007, the credit to reorganization costs of
$1.1 million primarily related to actions taken in prior
years for which we incurred lower than expected costs associated
with restructured facilities in North America.
Our negative operating margin was 0.97% in 2008 compared to a
positive margin of 1.27% and 1.35% in 2007 and 2006,
respectively. The 2008 negative operating margin includes the
impact of 2.16% of sales from the goodwill impairment charge
discussed above. Besides the goodwill impairment, the
significant decrease in operating margin in 2008 compared to
2007 reflects the decline in sales and the related reduction in
volume-based rebates, higher SG&A expenses and costs
related to strategic initiatives and reorganization and
expense-reduction efforts and the more competitive pricing
environment, partially offset by gross margin improvement from
mix of business and pricing discipline throughout the business
and the partial reserve release related to the Brazilian
commercial taxes positively impacting gross margin by
approximately two-basis points, as discussed above. The decrease
in operating margin in 2007 compared to 2006 was driven
primarily by the Brazilian commercial tax charge and the charge
for the previously discussed SEC matter, partially offset by a
gain on the sale of our semiconductor business in Asia-Pacific,
which collectively had a net negative impact on operating margin
of 0.12% in 2007. Our North American segment recorded a negative
operating margin of 0.35% in 2008 compared to operating margin
of 1.58% and 1.66% in 2007 and 2006, respectively. The
significant decrease in operating margin for North America in
2008 compared to 2007 and 2006 primarily reflects the charge for
the impairment of goodwill of 1.71% of North America net sales,
as well as competitive pricing pressures in our distribution
business resulting from the soft economic environment, the
investments in strategic initiatives and infrastructure and the
expense-reduction program costs. The prior year also included
the previously discussed charge related to the SEC matter, which
was 0.11% of North American sales in 2007. Our EMEA operating
margin decreased to 0.36% in 2008 compared to 1.22% and 1.18% in
2007 and 2006, respectively. The significant decrease in
operating margin for EMEA in 2008 compared to 2007 was primarily
attributable to the sales decline and the related reduction in
volume-based rebates, competitive pricing, reorganization costs,
and operating expenses that are not yet aligned with the current
sales
33
environment, as well as the 0.21% of net sales impact of the
regions portion of the goodwill impairment charge. The
slight increase in operating margin for EMEA in 2007 compared to
2006 was primarily attributable to continued focus on profitable
growth while continuing ongoing cost containment efforts. The
implementation of a new warehouse management system in Germany
in the second half of 2006 negatively impacted our profitability
through the first half of 2007 as we sought to address the
operational issues and win back market share lost by the
operational complications arising from the conversion. Our
Asia-Pacific negative operating margin was 5.12% in 2008
compared to operating margin of 1.64% and 1.25% in 2007 and
2006, respectively. The goodwill impairment impact in
Asia-Pacific, which was 6.88% of the regions net sales,
was partially offset by improvements in gross margin and ongoing
cost containment efforts in the region. The increase in
operating margin in 2007 compared to 2006 primarily reflects
improvements and strengthening of our operating model, the
economies of scale associated with the higher volume of business
and the gain of approximately four basis points from the sale of
our Asian semiconductor business. Our Latin American operating
margin was 2.50% in 2008 compared to a negative operating margin
of 0.28% in 2007 and operating margin of 2.02% in 2006. The
improvement in Latin America reflected enhanced gross margins
and the economies of scale associated with the higher volume of
business and ongoing cost containment efforts from 2006 through
2008, as well as the positive impact in 2008 of the
$8.2 million reversal of a portion of the reserve for a
Brazilian commercial tax charge. The loss in 2007 was largely
attributable to the commercial tax charge in Brazil, which was
1.94% of Latin American revenues.
Other expense (income) consisted primarily of interest income
and expense, foreign currency exchange gains and losses, and
other non-operating gains and losses. We incurred net other
expense of $50.0 million, $61.2 million and
$55.1 million in 2008, 2007 and 2006, respectively, or
0.14%, 0.17% and 0.18% of net sales, respectively. The decrease
in 2008 compared to 2007 primarily reflects lower net interest
expense from decreased borrowings associated with the lower
volume of business and overall declines in average interest
rates. The increase in 2007 net other expense compared to
2006 is commensurate with the overall growth in the business
during that year and is also reflective of higher market
interest rates on certain variable rate debt.
Our provision for income taxes in 2008, 2007 and 2006 was
$12.8 million, $109.3 million and $101.6 million,
respectively. Our effective tax rate in 2008, 2007 and 2006 was
(3.3%), 28.4% and 27.6%, respectively. Because a majority of the
goodwill impairment charge is non-deductible for tax purposes,
only $82.9 million of tax benefit was realized from the
charge. As a result, we have a tax provision on a pre-tax loss
in 2008. Aside from the goodwill impairment, the changes in our
effective tax rates in 2008, 2007 and 2006 are primarily
attributable to the changes in the proportion of income earned
within the various taxing jurisdictions and impacts of our
ongoing tax strategies. Our effective tax rate in 2008 was
positively impacted by the $8.2 million reversal of a
portion of the reserve for a Brazilian commercial tax charge,
for which we did not recognize an income tax expense, consistent
with the negative impact of $30.1 million
net Brazilian commercial tax charge in 2007, for which we
did not recognize an income tax benefit. The 2008 tax provision
also includes the release of tax reserves related to certain
hedge gains recorded in prior period, offset in part by an
increase in our valuation allowances placed against certain of
our deferred tax assets in certain EMEA business units.
34
Quarterly
Data; Seasonality
Our quarterly operating results have fluctuated significantly in
the past and will likely continue to do so in the future as a
result of various factors as more fully described in
Item 1A. Risk Factors.
The following table sets forth certain unaudited quarterly
historical financial data for each of the eight quarters in the
two years ended January 3, 2009. This unaudited quarterly
information has been prepared on the same basis as the annual
information presented elsewhere herein and, in our opinion,
includes all adjustments necessary for a fair statement of the
selected quarterly information. This information should be read
in conjunction with the consolidated financial statements and
notes thereto included elsewhere in this Annual Report on
Form 10-K.
The operating results for any quarter shown are not necessarily
indicative of results for any future period.
|
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|
|
|
|
|
|
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|
|
|
|
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|
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Income
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
Income
|
|
|
(Loss)
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|
|
|
|
|
Earnings
|
|
|
|
|
|
|
|
|
|
(Loss)
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|
|
Before
|
|
|
Net
|
|
|
(Loss)
|
|
|
|
Net
|
|
|
Gross
|
|
|
From
|
|
|
Income
|
|
|
Income
|
|
|
Per
|
|
|
|
Sales
|
|
|
Profit
|
|
|
Operations
|
|
|
Taxes
|
|
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(Loss)
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|
|
Share
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($ in millions, except per share data)
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|
|
Fiscal Year Ended January 3, 2009(1)
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Thirteen Weeks Ended:(2)(3)
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March 29, 2008
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$
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8,577.3
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$
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485.5
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$
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99.3
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|
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$
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86.6
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|
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$
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64.1
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|
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$
|
0.37
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June 28, 2008
|
|
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8,816.6
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|
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487.4
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|
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93.2
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|
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82.5
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|
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58.9
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|
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0.35
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September 27, 2008
|
|
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8,283.7
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452.9
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72.5
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|
|
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60.3
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|
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46.4
|
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|
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0.28
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January 3, 2009
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|
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8,684.5
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514.3
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|
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(597.1
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)
|
|
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(611.5
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)
|
|
|
(564.3
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)
|
|
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(3.48
|
)
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Fiscal Year Ended December 29, 2007
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Thirteen Weeks Ended:(3)(4)
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March 31, 2007
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$
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8,245.7
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$
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408.8
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|
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$
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73.7
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|
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$
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58.3
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|
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$
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37.0
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|
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$
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0.21
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June 30, 2007
|
|
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8,186.1
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|
|
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442.8
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|
|
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85.7
|
|
|
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70.5
|
|
|
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52.4
|
|
|
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0.30
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|
September 29, 2007
|
|
|
8,607.9
|
|
|
|
474.9
|
|
|
|
111.0
|
|
|
|
98.5
|
|
|
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72.4
|
|
|
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0.41
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December 29, 2007
|
|
|
10,007.4
|
|
|
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582.8
|
|
|
|
176.0
|
|
|
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157.9
|
|
|
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114.1
|
|
|
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0.64
|
|
|
|
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(1) |
|
Fiscal 2008 is a 53-week year making the quarter ended
January 3, 2009 a 14-week period. |
|
(2) |
|
Includes the pre-tax impact of charges related to reorganization
costs and expense-reduction program costs as follows: second
quarter, $7.7 million; third quarter; $4.1 million;
and fourth quarter, $6.8 million. The fourth quarter also
includes a pre-tax charge of $742.6 for the impairment of
goodwill and $8.2 million partial release of the reserve
for Brazilian commercial taxes related to a period which has
expired under the statute of limitations, recorded as a
reduction of cost of sales. |
|
(3) |
|
Diluted earnings (loss) per share is calculated independently
each quarter and for the full year based upon their respective
weighted average shares outstanding. Therefore, the sum of the
quarterly earnings (loss) per share may not equal the annual
earnings (loss) per share reported. |
|
(4) |
|
Includes the pre-tax impact of the following: first quarter,
$33.8 million reserve for commercial taxes in Brazil,
recorded in cost of sales; second quarter, $15.0 million
reserve for estimated losses associated with the SEC matter
regarding certain transactions with McAfee, Inc. (formerly NAI)
from 1998 through 2000, recorded as a charge to SG&A
expense; and fourth quarter, $3.6 million partial release
of the reserve for Brazilian commercial taxes related to a
period which has expired under the statute of limitations,
recorded as a reduction of cost of sales, and a
$2.9 million gain on the sale of our Asian semiconductor
business, recorded as a reduction of SG&A expense. |
Liquidity
and Capital Resources
Cash
Flows
We have financed working capital needs and investments in the
business largely through net income before noncash items,
available cash, borrowings under various revolving accounts
receivable-backed financing programs,
35
our term loan, revolving credit and other facilities, and trade
and supplier credit. The following is a detailed discussion of
our cash flows for 2008, 2007 and 2006.
Our cash and cash equivalents totaled $763.5 million and
$579.6 million at January 3, 2009 and
December 29, 2007, respectively. The higher cash and cash
equivalents level at January 3, 2009 compared to
December 29, 2007, primarily reflects the positive cash
flow that results from lower working capital requirements
associated with the lower volume of business in the current
economic environment, coupled with the ongoing generation of
profits from the business excluding non-cash items.
Operating activities provided net cash of $553.9 million,
$327.8 million, and $92.8 million in 2008, 2007 and
2006, respectively. The net cash provided by operating
activities in 2008 principally reflects decreases in accounts
receivable and inventories, partially offset by decreases in
accounts payable and accrued expenses. The decreases in accounts
receivable, inventories, accounts payable and accrued expenses
largely reflect the lower volume of business due to the overall
weakness in the economic environment in markets in which we
operate. The net cash provided by operating activities in 2007
was primarily due to net income before noncash charges,
partially offset by a net increase in working capital due to the
higher volume of business. The net cash provided by operating
activities in 2006 principally reflects net income before
noncash charges, partially offset by a net increase in working
capital. The increase in working capital largely reflects the
higher volume of business, higher inventory levels due to the
warehouse management system issues in Germany and timing of
certain product purchases.
Investing activities used net cash of $61.4 million,
$160.5 million and $105.3 million in 2008, 2007 and
2006, respectively. The net cash used by investing activities in
2008 was primarily due to capital expenditures of
$81.4 million and cash payments related to acquisitions of
$12.3 million, partially offset by the collection of
collateral deposits. The net cash used by investing activities
in 2007 was primarily due to cash payments related to
acquisitions of $129.0 million and capital expenditures of
$49.8 million, partially offset by the proceeds from the
sale of our Asia-Pacific semiconductor business. The net cash
used by investing activities in 2006 was primarily due to
capital expenditures of $39.2 million, short-term
collateral deposits on financing arrangements of
$35.0 million and cash payments related to acquisitions. As
our business has continued to grow over recent years and we have
continued to integrate acquisitions of distribution and adjacent
businesses, additional investments are necessary to support our
underlying infrastructure, business processes and IT systems in
order to continue to effectively manage the higher volume and
greater diversity of business. As a result, we presently expect
our capital expenditures will approximate $85 million in
2009.
Financing activities used net cash of $271.4 million in
2008 and provided net cash of $45.9 million and
$10.5 million in 2007 and 2006, respectively. The net cash
used by financing activities in 2008 primarily reflects our net
repayments of $323.2 million on our debt facilities and the
repurchase of Class A Common Stock of $222.3 million
under our $300 million stock repurchase program, partially
offset by $250 million of proceeds from our senior
unsecured term loan and $23.0 million in proceeds from the
exercise of stock options. The net cash provided by financing
activities in 2007 primarily reflects the proceeds from the
exercise of stock options of $66.7 million, partially
offset by our repurchase of Class A Common Stock of
$25.1 million under our $300 million stock repurchase
program instituted in the fourth quarter of 2007. The net cash
provided by financing activities in 2006 primarily reflects the
proceeds from the exercise of stock options of
$98.1 million, partially offset by the net payments of debt
facilities of $96.5 million.
Our debt level is highly influenced by our working capital
needs. As such, our borrowings fluctuate from period-to-period
and may also fluctuate significantly within a quarter. The
fluctuation is the result of the concentration of payments
received from customers toward the end of each month, as well as
the timing of payments made to our vendors. Accordingly, our
period-end debt balance may not be reflective of our average
debt level or maximum debt level during the periods presented or
at any point in time.
Acquisitions
and Disposition
In 2008, we acquired Eurequat SA in France, Intertrade A.F. AG
in Germany, Paradigm Distribution Ltd. in the United Kingdom and
Cantechs Group in China, all distributors offering value-added
distribution of automatic identification and data capture/point
of sale (AIDC/POS) technologies
and/or
mobile data to solutions providers and system integrators. These
acquisitions further expand our value-added distribution of
AIDC/POS solutions in
36
EMEA and in Asia-Pacific. These entities were acquired for an
aggregate cash price of $12.3 million, including related
acquisition costs, plus an estimated earn-out of
$0.9 million to be paid in 2009, which has been
preliminarily allocated to the assets acquired and liabilities
assumed based on their estimated fair values on the transaction
date, including intangible assets of $7.6 million,
primarily related to vendor and customer relationships with
estimated useful lives of 10 years. The resulting goodwill
recorded was $3.6 million and $1.6 million in EMEA and
Asia-Pacific, respectively.
In December 2007, we closed the sale of our Asian semiconductor
business for a cash price of $18.2 million. As a result, we
recorded a pre-tax gain of $2.9 million, which is reported
as a reduction to SG&A expenses in our consolidated
statement of income. We allocated $5.8 million of
Asia-Pacific reporting unit goodwill as part of the disposition
of the semiconductor business and in the determination of the
associated gain on sale.
In June 2007, we acquired certain assets and liabilities of DBL.
DBL was acquired for $102.2 million, which included an
initial cash price of $96.5 million, including related
acquisition costs, plus an estimated working capital adjustment
of $5.7 million, which is subject to a final
true-up to
be agreed to by the two parties. The purchase price was
allocated to the assets acquired and liabilities assumed based
on their estimated fair values on the transaction date,
resulting in goodwill of $59.7 million, trade names of
$11.6 million with estimated useful lives of 20 years
and other intangible assets of $12.8 million primarily
related to customer relationships and non-compete agreements
with estimated useful lives of up to eight years. In the first
half of 2008, we made adjustments to the purchase price
allocation above, primarily resulting from an increase in the
balance of certain preacquisition liabilities, by
$6.9 million. These adjustments yielded an increase of
goodwill for the same amount.
In March 2007, we acquired all the outstanding shares of VPN
Dynamics and a minority interest of 49% in a related company,
Securematics. Our interests in these related entities were
acquired for an initial aggregate purchase price of
$26.8 million, including contingent consideration for the
achievement of a milestone plus related acquisition costs. We
have a call option and the sellers have a put option for the
remaining 51% interest held by the shareholders of Securematics
at a purchase price of $1.0 million, which both parties
have agreed will be executed in March 2012. The option price of
$1.0 million has been recorded in accrued expenses in our
consolidated balance sheet at January 3, 2009 and
December 29, 2007. The results of Securematics have been
consolidated in accordance with Financial Accounting Standards
Board Interpretation No. 46 Consolidation of Variable
Interest Entities. The purchase price was allocated to the
assets acquired and liabilities assumed based on their estimated
fair values on the transaction date, resulting in goodwill of
$20.7 million, trade names of $3.8 million with
estimated useful lives of 20 years, other intangible assets
of $4.0 million, primarily related to customer
relationships and non-compete agreements with estimated useful
lives of up to five years, and a deferred tax liability of
$3.2 million related to the intangible assets, none of
which are deductible for tax purposes. In 2008, we made an
adjustment to the purchase price allocation associated with
these acquisitions to reflect a reduction in tax-related
liabilities at the date of purchase totaling $0.1 million
and a decrease of goodwill for the same amount.
In June 2006, we acquired the assets of SymTech, a leading
Nordic distributor of AIDC/POS technologies to solution
providers and system integrators. The purchase price for this
acquisition consisted of a cash payment of $3.6 million,
resulting in the recording of $0.9 million of goodwill and
$0.2 million of amortizable intangible assets primarily
related to customer relationships and non-compete agreements.
Capital
Resources
We have maintained a conservative capital structure which we
believe will serve us well in the current economic environment.
We have a range of corporate finance facilities which are
diversified by type, maturity and geographic region with various
financial institutions worldwide. These facilities have
staggered maturities through 2012. Our cash and cash equivalents
are deposited
and/or
invested with various financial institutions that we endeavor to
monitor regularly for credit quality. We believe that our
existing sources of liquidity, including cash resources and cash
provided by operating activities, supplemented as necessary with
funds available under our credit arrangements, will provide
sufficient resources to meet our present and future working
capital and cash requirements for at least the next twelve
months. However, the capital and credit markets have been
experiencing unprecedented levels of volatility and disruption.
Such market conditions may limit our ability to replace, in a
timely manner, maturing credit facilities or affect our ability
to access committed capacities or the capital we
37
require may not be available on terms acceptable to us, or at
all, due to the inability of our finance partners to meet their
commitments to us.
We have a revolving trade accounts receivable-backed financing
program in the U.S., which provides for up to $600 million
in borrowing capacity secured by substantially all
U.S.-based
receivables. The interest rate on this facility is dependent on
designated commercial paper rates plus a predetermined margin.
At January 3, 2009 and December 29, 2007, we had
borrowings of $69.0 million and $387.5 million,
respectively, under this revolving trade accounts
receivable-backed financing program in the U.S. At our
option, the program may be increased to as much as
$650 million at any time prior to its maturity date of July
2010.
We have two revolving trade accounts receivable-backed financing
facilities in EMEA, which individually provide for borrowing
capacity of up to Euro 107 million, or approximately
$148 million, and Euro 230 million, or
approximately $319 million, at January 3, 2009. Both
facilities are with a financial institution that has an
arrangement with a related issuer of third-party commercial
paper. These European facilities require certain commitment
fees, and borrowings under both facilities incur financing costs
at designated commercial paper rates plus a predetermined
margin. At January 3, 2009 and December 29, 2007, we
had no borrowings under these European revolving trade accounts
receivable-backed financing facilities. During the fourth
quarter of 2008, the Euro 230 million facility was
extended to March 2009 at a reduced borrowing capacity amount of
Euro 132 million, effective in January 2009. The
Euro 107 million facility matures in July 2010.
We also have two revolving trade accounts receivable facilities
in EMEA, which individually provide for a maximum borrowing
capacity of 60 million British pound sterling, or
approximately $87 million, and Euro 90 million,
or approximately $125 million, respectively, at
January 3, 2009. At January 3, 2009 and
December 29, 2007, we had no borrowings outstanding under
these European factoring facilities. These facilities mature in
March 2010.
We have a multi-currency revolving trade accounts
receivable-backed financing facility in Asia-Pacific, which
provides for up to 210 million Australian dollars, or
approximately $149 million, at January 3, 2009 of
borrowing capacity. The interest rate is dependent upon the
currency in which the drawing is made and is related to the
local short-term bank indicator rate for such currency. At
January 3, 2009 and December 29, 2007, we had
borrowings of $29.0 million and $0 under this Asia-Pacific
multi-currency revolving accounts receivable-backed financing
facility. During the fourth quarter of 2008, in addition to
reducing the borrowing capacity of this facility from its
earlier 250 million Australian dollars capacity, we
extended the maturity date to September 2011.
Our ability to access financing under all our trade accounts
receivable-backed financing programs, as discussed above, is
dependent upon the level of eligible trade accounts receivable
as well as continued covenant compliance. We may experience a
lower level of eligible trade accounts receivable resulting from
declines in sales volumes or failure to meet certain defined
eligibility criteria for the trade accounts receivable, such as
receivables remaining assignable and free of liens and dispute
or set-off rights. At January 3, 2009, our actual aggregate
available capacity under these programs was approximately
$1.29 billion based on eligible trade accounts receivable
available, of which $98.0 million of such borrowing
capacity was used. Our two revolving trade accounts
receivable-backed financing facilities in EMEA are affected by
the level of market demand for commercial paper, and could be
impacted by the credit ratings of the third-party issuer of
commercial paper or
back-up
liquidity providers, if not replaced. In addition, in certain
situations, we could lose access to all or part of our financing
with respect to the EMEA facility maturing in March 2009, if our
authorization to collect the receivables is rescinded by the
relevant supplier under applicable local law.
In July 2008, we entered into a $250 million senior
unsecured term loan facility with a bank syndicate. The interest
rate on this facility is based on one-month LIBOR, plus a
variable margin that is based on our debt ratings and leverage
ratio. Interest is payable monthly. Under the terms of the
agreement, we are also required to pay a minimum of
$3.1 million of principal on the loan on a quarterly basis
beginning in November 2009 and a balloon payment of
$215.6 million at the end of the loan term in August 2012.
The agreement also contains certain negative covenants,
including restrictions on funded debt and interest coverage, as
well as customary representations and warranties, affirmative
covenants and events of default. The proceeds of the term loan
were used for general corporate purposes, including refinancing
existing indebtedness and funding working capital.
38
In connection with the senior unsecured term loan facility
above, we entered into an interest rate swap agreement for
$200 million of the term loan principal amount, the effect
of which was to swap the LIBOR portion of the floating-rate
obligation for a fixed-rate obligation. The fixed rate including
the variable margin is approximately 5%. The notional amount on
the interest rate swap agreement reduces by $3.1 million
quarterly beginning November 2009, consistent with the
amortization schedule of the senior unsecured term loan
discussed above. We account for the interest rate swap agreement
as a cash flow hedge. At January 3, 2009, the
mark-to-market value of the interest rate swap amounted to
$11.8 million which is recorded in other comprehensive
income with an offsetting adjustment to the hedged debt,
bringing the total carrying value of the senior unsecured term
loan to $261.8 million.
We have a $275 million revolving senior unsecured credit
facility with a bank syndicate in North America, which matures
in August 2012. The interest rate on the revolving senior
unsecured credit facility is based on LIBOR, plus a
predetermined margin that is based on our debt ratings and
leverage ratio. At January 3, 2009 and December 29,
2007, we had no borrowings under this North American revolving
senior unsecured credit facility. This credit facility may also
be used to issue letters of credit. At January 3, 2009 and
December 29, 2007, letters of credit of $9.1 million
and $41.2 million, respectively, were issued to certain
vendors and financial institutions to support purchases by our
subsidiaries, payment of insurance premiums and flooring
arrangements. Our available capacity under the agreement is
reduced by the amount of any issued and outstanding letters of
credit.
In October 2008, we terminated our 100 million Australian
dollar senior unsecured credit facility with a bank syndicate,
which was due to expire in December 2008. During the fourth
quarter of 2008, the terminated facility was replaced with a
20 million Australian dollar (approximately
$14 million at January 3, 2009) revolving senior
unsecured credit facility, which expires in December 2011. At
December 29, 2007, we had borrowings of $0.9 million
under the former facility. We had no borrowings under the new
facility at January 3, 2009.
We also have additional lines of credit, short-term overdraft
facilities and other credit facilities with various financial
institutions worldwide, which provide for borrowing capacity
aggregating approximately $803 million at January 3,
2009. Most of these arrangements are on an uncommitted basis and
are reviewed periodically for renewal. At January 3, 2009
and December 29, 2007, we had $118.6 million and
$134.7 million, respectively, outstanding under these
facilities. The weighted average interest rate on the
outstanding borrowings under these facilities, which may
fluctuate depending on geographic mix, was 5.1% and 6.4% per
annum at January 3, 2009 and December 29, 2007,
respectively. At January 3, 2009 and December 29,
2007, letters of credit totaling $31.6 million and
$30.2 million, respectively, were issued principally to
certain vendors to support purchases by our subsidiaries. The
issuance of these letters of credit reduces our available
capacity under these agreements by the same amount.
Covenant
Compliance
We are required to comply with certain financial covenants under
the terms of some of our financing facilities, including
restrictions on funded debt and covenants related to tangible
net worth, leverage and interest coverage ratios, and trade
accounts receivable portfolio performance, including metrics
related to receivables and payables. We are also restricted by
other covenants, including but not limited to, restrictions on
the amount of additional indebtedness we can incur, dividends we
can pay, and the amount of common stock that we can repurchase
annually. At January 3, 2009, we were in compliance with
all material covenants or other material requirements set forth
in our accounts receivable financing programs and credit
agreements or other agreements with our creditors as discussed
above. The impairment charge to goodwill of $742.6 million
in the fourth quarter of 2008 did not affect our compliance with
any of our covenants.
Contractual
Obligations
The following summarizes our financing capacity and contractual
obligations at January 3, 2009 (in millions), and the
effects of scheduled payments on such obligations are expected
to have on our liquidity and cash flows in future periods. The
amounts do not include interest. Except for interest related to
$200 million of the senior unsecured term loan, which is
fixed at approximately 5%, through the interest rate swap, all
other interest is incurred at variable rates (see Note 6 to
our consolidated financial statements).
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Total
|
|
|
Balance
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
After
|
|
Contractual Obligations
|
|
Capacity
|
|
|
Outstanding
|
|
|
1 Year
|
|
|
1 3 Years
|
|
|
3 5 Years
|
|
|
5 years
|
|
|
North American revolving trade accounts receivable-backed
financing facilities(1)
|
|
$
|
600.0
|
|
|
$
|
69.0
|
|
|
$
|
|
|
|
$
|
69.0
|
|
|
$
|
|
|
|
$
|
|
|
European revolving trade accounts receivable-backed financing
facilities(1)
|
|
|
467.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia-Pacific revolving trade accounts receivable-backed
financing facilities(1)
|
|
|
149.0
|
|
|
|
29.0
|
|
|
|
|
|
|
|
29.0
|
|
|
|
|
|
|
|
|
|
European trade accounts receivable-backed factoring facilities(1)
|
|
|
212.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior unsecured term loan(2)
|
|
|
261.8
|
|
|
|
261.8
|
|
|
|
3.1
|
|
|
|
25.0
|
|
|
|
233.7
|
|
|
|
|
|
Revolving senior unsecured credit facilities(3)
|
|
|
289.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank overdrafts and other(4)
|
|
|
803.0
|
|
|
|
118.6
|
|
|
|
118.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
2,781.8
|
|
|
|
478.4
|
|
|
|
121.7
|
|
|
|
123.0
|
|
|
|
233.7
|
|
|
|
|
|
Minimum payments under:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases(5)
|
|
|
291.1
|
|
|
|
291.1
|
|
|
|
82.4
|
|
|
|
120.2
|
|
|
|
64.4
|
|
|
|
24.1
|
|
IT and business process outsourcing agreements(6)
|
|
|
33.2
|
|
|
|
33.2
|
|
|
|
13.0
|
|
|
|
15.1
|
|
|
|
5.1
|
|
|
|
|
|
FIN 48 liability(7)
|
|
|
1.0
|
|
|
|
1.0
|
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,107.1
|
|
|
$
|
803.7
|
|
|
$
|
218.1
|
|
|
$
|
258.3
|
|
|
$
|
303.2
|
|
|
$
|
24.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The capacity amount in the table above represents the maximum
capacity available under these facilities. Our actual capacity
is dependent upon the actual amount of eligible trade accounts
receivable that may be used to support these facilities. As of
January 3, 2009, our actual aggregate capacity under these
programs based on eligible accounts receivable was approximately
$1.29 billion. |
|
(2) |
|
The capacity amount in the table above includes the
mark-to-market value of the interest rate swap which amounts to
$11.8 million (see Note 6 to our consolidated
financial statements). |
|
(3) |
|
The capacity amount in the table above represents the maximum
capacity available under these facilities. These facilities can
also be used to support letters of credit. At January 3,
2009, letters of credit totaling $9.1 million were issued
to certain vendors and financial institutions to support
purchases by our subsidiaries, payment of insurance premiums and
flooring arrangements. The issuance of these letters of credit
reduces our available capacity by the same amount. |
|
(4) |
|
Certain of these programs can also be used to support letters of
credit. At January 3, 2009, letters of credit totaling
approximately $31.6 million were issued principally to
certain vendors to support purchases by our subsidiaries. The
issuance of these letters of credit also reduces our available
capacity by the same amount. |
|
(5) |
|
We lease the majority of our facilities and certain equipment
under noncancelable operating leases. Amounts in this table
represent future minimum payments on operating leases that have
remaining noncancelable lease terms in excess of one year. |
|
(6) |
|
In December 2008, we renewed for another five years our
agreement with a third-party provider of IT outsourcing
services. The services include mainframe, major server, desktop
and enterprise storage operations, wide-area and local-area
network support and engineering; systems management services;
help desk services; and worldwide voice/PBX. This agreement is
cancelable at our option subject to payment of termination fees.
In September 2005, we entered into an agreement with a leading
global business process outsource service provider. The services
provided to our North America operations include selected
functions in finance and |
40
|
|
|
|
|
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.
41
During 2008, hedged transactions were denominated in
U.S. dollars, Canadian dollars, euros, British pound,
Danish krone, Hungarian forint, Norwegian kroner, Swedish krona,
Swiss francs, Israeli shekel, Australian dollars, Chinese yuan,
Indian rupees, Malaysian ringit, New Zealand dollars,
Singaporean dollars, Sri Lankan rupees, Thai baht, Argentine
peso, Brazilian reais, Chilean peso and Mexican peso.
We are exposed to changes in interest rates primarily as a
result of our long-term debt used to maintain liquidity and
finance working capital, capital expenditures and business
expansion. Our management objective is to finance our business
at interest rates that are competitive in the marketplace. To
achieve our objectives, we rely primarily on variable-rate debt
with some interest rate exposure offset through interest rate
swaps.
Market
Risk Management
Foreign exchange and interest rate risk and related derivatives
used are monitored using a variety of techniques including a
review of market value, sensitivity analysis and
Value-at-Risk
(VaR). The VaR model determines the maximum
potential loss in the fair value of market-sensitive financial
instruments assuming a
one-day
holding period. The VaR model estimates were made assuming
normal market conditions and a 95% confidence level. There are
various modeling techniques that can be used in the VaR
computation. Our computations are based on interrelationships
between currencies and interest rates (a
variance/co-variance technique). The model includes
all of our forwards, cross-currency and other interest rate
swaps, fixed-rate debt and nonfunctional currency denominated
cash and debt (i.e., our market-sensitive derivative and other
financial instruments as defined by the U.S. Securities and
Exchange Commission). The accounts receivable and accounts
payable denominated in foreign currencies, which certain of
these instruments are intended to hedge, were excluded from the
model.
The VaR model is a risk analysis tool and does not purport to
represent actual losses in fair value that will be incurred by
us, nor does it consider the potential effect of favorable
changes in market rates. It also does not represent the maximum
possible loss that may occur. Actual future gains and losses
will likely differ from those estimated because of changes or
differences in market rates and interrelationships, hedging
instruments and hedge percentages, timing and other factors.
The following table sets forth the estimated maximum potential
one-day loss
in fair value, calculated using the VaR model (in millions). We
believe that the hypothetical loss in fair value of our
derivatives would be offset by gains in the value of the
underlying transactions being hedged.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate
|
|
|
Currency Sensitive
|
|
|
|
|
|
|
Sensitive Financial
|
|
|
Financial
|
|
|
Combined
|
|
|
|
Instruments
|
|
|
Instruments
|
|
|
Portfolio
|
|
|
VaR as of January 3, 2009
|
|
$
|
8.8
|
|
|
$
|
0.5
|
|
|
$
|
4.1
|
|
VaR as of December 29, 2007
|
|
|
8.4
|
|
|
|
0.0
|
|
|
|
6.1
|
|
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Information concerning quantitative and qualitative disclosures
about market risk is included under the captions Market
Risk and Market Risk Management in
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations in this
Annual Report on
Form 10-K.
42
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page
|
|
|
|
|
44
|
|
|
|
|
45
|
|
|
|
|
46
|
|
|
|
|
47
|
|
|
|
|
48
|
|
|
|
|
74
|
|
|
|
|
75
|
|
43
INGRAM
MICRO INC.
(Dollars in 000s, except share data)
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year End
|
|
|
|
2008
|
|
|
2007
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
763,495
|
|
|
$
|
579,626
|
|
Trade accounts receivable (less allowances of $73,638 and
$83,155)
|
|
|
3,179,455
|
|
|
|
4,054,824
|
|
Inventories
|
|
|
2,306,617
|
|
|
|
2,766,148
|
|
Other current assets
|
|
|
425,270
|
|
|
|
520,069
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
6,674,837
|
|
|
|
7,920,667
|
|
Property and equipment, net
|
|
|
202,142
|
|
|
|
181,416
|
|
Goodwill
|
|
|
|
|
|
|
733,481
|
|
Other assets
|
|
|
206,494
|
|
|
|
139,437
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
7,083,473
|
|
|
$
|
8,975,001
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
3,427,362
|
|
|
$
|
4,349,700
|
|
Accrued expenses
|
|
|
485,573
|
|
|
|
602,295
|
|
Current maturities of long-term debt
|
|
|
121,724
|
|
|
|
135,616
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
4,034,659
|
|
|
|
5,087,611
|
|
Long-term debt, less current maturities
|
|
|
356,664
|
|
|
|
387,500
|
|
Other liabilities
|
|
|
36,305
|
|
|
|
72,948
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
4,427,628
|
|
|
|
5,548,059
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 10)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred Stock, $0.01 par value, 25,000,000 shares
authorized; no shares issued and outstanding
|
|
|
|
|
|
|
|
|
Class A Common Stock, $0.01 par value,
500,000,000 shares authorized;
|
|
|
|
|
|
|
|
|
176,582,434 and 174,243,838 shares issued and 161,330,221
and
|
|
|
|
|
|
|
|
|
172,942,347 shares outstanding in 2008 and 2007,
respectively
|
|
|
1,766
|
|
|
|
1,742
|
|
Class B Common Stock, $0.01 par value,
135,000,000 shares authorized; no shares issued and
outstanding
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
1,145,145
|
|
|
|
1,114,031
|
|
Treasury stock, 15,252,213 shares in 2008 and
1,301,491 shares in 2007
|
|
|
(246,314
|
)
|
|
|
(25,061
|
)
|
Retained earnings
|
|
|
1,680,557
|
|
|
|
2,075,478
|
|
Accumulated other comprehensive income
|
|
|
74,691
|
|
|
|
260,752
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
2,655,845
|
|
|
|
3,426,942
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
7,083,473
|
|
|
$
|
8,975,001
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to these consolidated financial
statements.
44
INGRAM
MICRO INC.
(Dollars in 000s, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Net sales
|
|
$
|
34,362,152
|
|
|
$
|
35,047,089
|
|
|
$
|
31,357,477
|
|
Cost of sales
|
|
|
32,422,061
|
|
|
|
33,137,791
|
|
|
|
29,672,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,940,091
|
|
|
|
1,909,298
|
|
|
|
1,685,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
1,512,578
|
|
|
|
1,463,969
|
|
|
|
1,264,568
|
|
Impairment of goodwill
|
|
|
742,653
|
|
|
|
|
|
|
|
|
|
Reorganization costs (credits)
|
|
|
17,029
|
|
|
|
(1,091
|
)
|
|
|
(1,727
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,272,260
|
|
|
|
1,462,878
|
|
|
|
1,262,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(332,169
|
)
|
|
|
446,420
|
|
|
|
422,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
(18,337
|
)
|
|
|
(20,106
|
)
|
|
|
(8,974
|
)
|
Interest expense
|
|
|
64,548
|
|
|
|
75,495
|
|
|
|
54,599
|
|
Losses on sale of receivables
|
|
|
|
|
|
|
|
|
|
|
1,503
|
|
Net foreign exchange loss (gain)
|
|
|
1,105
|
|
|
|
(135
|
)
|
|
|
(198
|
)
|
Other
|
|
|
2,653
|
|
|
|
5,928
|
|
|
|
8,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49,969
|
|
|
|
61,182
|
|
|
|
55,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(382,138
|
)
|
|
|
385,238
|
|
|
|
367,333
|
|
Provision for income taxes
|
|
|
12,783
|
|
|
|
109,330
|
|
|
|
101,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(394,921
|
)
|
|
$
|
275,908
|
|
|
$
|
265,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
(2.37
|
)
|
|
$
|
1.61
|
|
|
$
|
1.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
$
|
(2.37
|
)
|
|
$
|
1.56
|
|
|
$
|
1.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to these consolidated financial
statements.
45
INGRAM
MICRO INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Paid-in
|
|
|
Treasury
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Unearned
|
|
|
|
|
|
|
Class A
|
|
|
Capital
|
|
|
Stock
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
Compensation
|
|
|
Total
|
|
|
|
(Dollars in 000s)
|
|
|
December 31, 2005
|
|
$
|
1,624
|
|
|
$
|
874,984
|
|
|
$
|
|
|
|
$
|
1,538,761
|
|
|
$
|
23,324
|
|
|
$
|
(95
|
)
|
|
$
|
2,438,598
|
|
Stock options exercised
|
|
|
70
|
|
|
|
98,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98,129
|
|
Income tax benefit from exercise of stock options
|
|
|
|
|
|
|
3,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,994
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
28,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,875
|
|
Reversal of restricted stock units
|
|
|
|
|
|
|
(95
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
265,766
|
|
|
|
85,113
|
|
|
|
|
|
|
|
350,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30, 2006
|
|
|
1,694
|
|
|
|
1,005,817
|
|
|
|
|
|
|
|
1,804,527
|
|
|
|
108,437
|
|
|
|
|
|
|
|
2,920,475
|
|
Stock options exercised and shares issued under the stock plan,
net of shares withheld for employee taxes
|
|
|
48
|
|
|
|
64,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64,737
|
|
Income tax benefit from stock plan awards
|
|
|
|
|
|
|
5,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,650
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
37,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,875
|
|
Repurchase of Class A Common Stock
|
|
|
|
|
|
|
|
|
|
|
(25,061
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25,061
|
)
|
Adjustment for adoption of FIN 48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,957
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,957
|
)
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
275,908
|
|
|
|
152,315
|
|
|
|
|
|
|
|
428,223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 29, 2007
|
|
|
1,742
|
|
|
|
1,114,031
|
|
|
|
(25,061
|
)
|
|
|
2,075,478
|
|
|
|
260,752
|
|
|
|
|
|
|
|
3,426,942
|
|
Stock options exercised and shares issued under the stock plan,
net of shares withheld for employee taxes
|
|
|
24
|
|
|
|
18,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,338
|
|
Income tax provision for stock plan awards
|
|
|
|
|
|
|
(784
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(784
|
)
|
Stock-based compensation expense
|
|
|
|
|
|
|
14,845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,845
|
|
Repurchase of Class A Common Stock
|
|
|
|
|
|
|
|
|
|
|
(222,346
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(222,346
|
)
|
Issuance of treasury shares, net of shares withheld for employee
taxes
|
|
|
|
|
|
|
(1,261
|
)
|
|
|
1,093
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(168
|
)
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(394,921
|
)
|
|
|
(186,061
|
)
|
|
|
|
|
|
|
(580,982
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 3, 2009
|
|
$
|
1,766
|
|
|
$
|
1,145,145
|
|
|
$
|
(246,314
|
)
|
|
$
|
1,680,557
|
|
|
$
|
74,691
|
|
|
$
|
|
|
|
$
|
2,655,845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to these consolidated financial
statements.
46
INGRAM
MICRO INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in 000s)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(394,921
|
)
|
|
$
|
275,908
|
|
|
$
|
265,766
|
|
Adjustments to reconcile net income (loss) to cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
68,404
|
|
|
|
64,078
|
|
|
|
61,187
|
|
Impairment of goodwill
|
|
|
742,653
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
14,845
|
|
|
|
37,875
|
|
|
|
28,875
|
|
Excess tax benefit from stock-based compensation
|
|
|
(982
|
)
|
|
|
(5,674
|
)
|
|
|
(8,923
|
)
|
Noncash charges for interest and compensation
|
|
|
382
|
|
|
|
399
|
|
|
|
394
|
|
Gain on sale of the Asian semiconductor business
|
|
|
|
|
|
|
(2,859
|
)
|
|
|
|
|
Deferred income taxes
|
|
|
(76,330
|
)
|
|
|
(33,326
|
)
|
|
|
(2,111
|
)
|
Changes in operating assets and liabilities, net of effects of
acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in amounts sold under accounts receivable programs
|
|
|
|
|
|
|
(68,505
|
)
|
|
|
68,505
|
|
Accounts receivable
|
|
|
783,824
|
|
|
|
(513,909
|
)
|
|
|
(175,343
|
)
|
Inventories
|
|
|
387,723
|
|
|
|
40,869
|
|
|
|
(456,453
|
)
|
Other current assets
|
|
|
28,941
|
|
|
|
(54,199
|
)
|
|
|
(25,599
|
)
|
Accounts payable
|
|
|
(831,480
|
)
|
|
|
364,736
|
|
|
|
247,951
|
|
Change in book overdrafts
|
|
|
(10,994
|
)
|
|
|
41,866
|
|
|
|
42,172
|
|
Accrued expenses
|
|
|
(158,121
|
)
|
|
|
180,555
|
|
|
|
46,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by operating activities
|
|
|
553,944
|
|
|
|
327,814
|
|
|
|
92,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(81,359
|
)
|
|
|
(49,755
|
)
|
|
|
(39,169
|
)
|
Proceeds from sale of property and equipment
|
|
|
|
|
|
|
|
|
|
|
2,572
|
|
Increase in marketable trading securities
|
|
|
(2,731
|
)
|
|
|
|
|
|
|
|
|
Proceeds from sale of a business
|
|
|
|
|
|
|
18,245
|
|
|
|
|
|
Collateral deposits on financing arrangements
|
|
|
35,000
|
|
|
|
|
|
|
|
(35,000
|
)
|
Acquisitions, net of cash acquired
|
|
|
(12,347
|
)
|
|
|
(128,965
|
)
|
|
|
(33,727
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used by investing activities
|
|
|
(61,437
|
)
|
|
|
(160,475
|
)
|
|
|
(105,324
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
23,256
|
|
|
|
66,698
|
|
|
|
98,129
|
|
Repurchase of Class A Common Stock
|
|
|
(222,346
|
)
|
|
|
(25,061
|
)
|
|
|
|
|
Excess tax benefit from stock-based compensation
|
|
|
982
|
|
|
|
5,674
|
|
|
|
8,923
|
|
Proceeds from senior unsecured term loan
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
Net repayments of debt
|
|
|
(323,243
|
)
|
|
|
(1,407
|
)
|
|
|
(96,546
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided (used) by financing activities
|
|
|
(271,351
|
)
|
|
|
45,904
|
|
|
|
10,506
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(37,287
|
)
|
|
|
33,044
|
|
|
|
10,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents
|
|
|
183,869
|
|
|
|
246,287
|
|
|
|
8,858
|
|
Cash and cash equivalents, beginning of year
|
|
|
579,626
|
|
|
|
333,339
|
|
|
|
324,481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
763,495
|
|
|
$
|
579,626
|
|
|
$
|
333,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash payments during the year:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
63,448
|
|
|
$
|
75,643
|
|
|
$
|
51,327
|
|
Income taxes
|
|
|
86,076
|
|
|
|
100,015
|
|
|
|
119,276
|
|
See accompanying notes to these consolidated financial
statements.
47
INGRAM
MICRO INC.
(Dollars
in 000s, except share and per share data)
|
|
Note 1
|
Organization
and Basis of Presentation
|
Ingram Micro Inc. (Ingram Micro) and its
subsidiaries are primarily engaged in the distribution of
information technology (IT) products and supply
chain solutions worldwide. Ingram Micro operates in North
America, Europe, Middle East and Africa (EMEA),
Asia-Pacific and Latin America.
|
|
Note 2
|
Significant
Accounting Policies
|
Basis
of Consolidation
The consolidated financial statements include the accounts of
Ingram Micro and its subsidiaries (collectively referred to
herein as the Company). All significant intercompany
accounts and transactions have been eliminated in consolidation.
Fiscal
Year
The fiscal year of the Company is a 52- or 53-week period ending
on the Saturday nearest to December 31. All references
herein to 2008, 2007 and
2006 represent the 53- or 52-week fiscal years ended
January 3, 2009 (53-weeks), December 29, 2007
(52-weeks) and December 30, 2006 (52-weeks), respectively.
Use of
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America (U.S.) requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at
the financial statement date, and reported amounts of revenue
and expenses during the reporting period. Significant estimates
primarily relate to the realizable value of accounts receivable,
vendor programs, inventories, goodwill, intangible and other
long-lived assets, income taxes and contingencies and
litigation. Actual results could differ from these estimates.
Revenue
Recognition
Revenue is recognized when: an arrangement exists; delivery has
occurred, including transfer of title and risk of loss for
product sales, or services have been rendered for service
revenues; the price to the buyer is fixed or determinable; and
collectibility is reasonably assured. Service revenues have
represented less than 10% of total net sales for 2008, 2007 and
2006. The Company, under specific conditions, permits its
customers to return or exchange products. The provision for
estimated sales returns is recorded concurrently with the
recognition of revenue. The net impact on gross margin from
estimated sales returns is included in allowances against trade
accounts receivable in the consolidated balance sheet. The
Company also has limited contractual relationships with certain
of its customers and suppliers whereby the Company assumes an
agency relationship in the transaction as defined by
EITF 99-19,
Reporting Revenue Gross as a Principal versus Net as an
Agent. In such arrangements, the Company recognizes the
net fee associated with serving as an agent in sales.
Vendor
Programs
Funds received from vendors for price protection, product
rebates, marketing/promotion, infrastructure reimbursement and
meet-competition programs are recorded as adjustments to product
costs, revenue, or selling, general and administrative expenses
according to the nature of the program. Some of these programs
may extend over one or more quarterly reporting periods. The
Company accrues rebates or other vendor incentives as earned
based on sales of qualifying products or as services are
provided in accordance with the terms of the related program.
48
INGRAM
MICRO INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company sells products purchased from many vendors, but
generated approximately 23%, 23% and 22% of its net sales in
fiscal years 2008, 2007 and 2006, respectively, from products
purchased from Hewlett-Packard Company. There were no other
vendors that represented 10% or more of the Companys net
sales in each of the last three years.
Warranties
The Companys suppliers generally warrant the products
distributed by the Company and allow returns of defective
products, including those that have been returned to the Company
by its customers. The Company generally does not independently
warrant the products it distributes; however, local laws might
impose warranty obligations upon distributors (such as in the
case of supplier liquidation). The Company is obligated to
provide warranty protection for sales of certain IT products
within the European Union (EU) for up to two years
as required under the EU directive where vendors have not
affirmatively agreed to provide pass-through protection. In
addition, the Company warrants its services, products that it
builds-to-order from components purchased from other sources,
and its own branded products. Provision for estimated warranty
costs is recorded at the time of sale and periodically adjusted
to reflect actual experience. Warranty expense and the related
obligations are not material to the Companys consolidated
financial statements.
Foreign
Currency Translation and Remeasurement
Financial statements of foreign subsidiaries, for which the
functional currency is the local currency, are translated into
U.S. dollars using the exchange rate at each balance sheet
date for assets and liabilities and a weighted average exchange
rate for each period for statement of income items. Translation
adjustments are recorded in accumulated other comprehensive
income, a component of stockholders equity. The functional
currency of the Companys operations in Latin America and
certain operations within the Companys Asia-Pacific and
EMEA regions is the U.S. dollar; accordingly, the monetary
assets and liabilities of these subsidiaries are translated into
U.S. dollars at the exchange rate in effect at the balance
sheet date. Revenues, expenses, gains or losses are translated
at the average exchange rate for the period, and nonmonetary
assets and liabilities are translated at historical rates. The
resultant remeasurement gains and losses of these operations as
well as gains and losses from foreign currency transactions are
included in the consolidated statement of income.
Cash
and Cash Equivalents
The Company considers all highly liquid investments with
original maturities of three months or less to be cash
equivalents.
Book overdrafts of $315,033 and $326,027 as of January 3,
2009 and December 29, 2007, respectively, represent checks
issued that had not been presented for payment to the banks and
are classified as accounts payable in the Companys
consolidated balance sheet. The Company typically funds these
overdrafts through normal collections of funds or transfers from
bank balances at other financial institutions. Under the terms
of the Companys facilities with its banks, the respective
financial institutions are not legally obligated to honor the
book overdraft balances as of January 3, 2009 and
December 29, 2007, or any balance on any given date.
For the fifty-three weeks ended January 3, 2009, the
Company revised the presentation of changes in book overdrafts
from a financing activity to an operating activity in its
consolidated statement of cash flows with a conforming change to
the prior period presentation. The effect of this change
increased the cash provided by operating activities for 2007 and
2006 from $285,948 and $50,672, respectively, as previously
disclosed in the prior year Annual Report on
Form 10-K,
to $327,814 and $92,844, respectively, with a corresponding
decrease in the cash flows provided by financing activities for
2007 and 2006 from $87,770 and $52,678, respectively, to $45,904
and $10,506, respectively.
49
INGRAM
MICRO INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Inventories
Inventories are stated at the lower of average cost or market.
Property
and Equipment
Property and equipment are recorded at cost and depreciated
using the straight-line method over the estimated useful lives
noted below. The Company also capitalizes computer software
costs that meet both the definition of internal-use software and
defined criteria for capitalization in accordance with Statement
of Position
No. 98-1,
Accounting for the Cost of Computer Software Developed or
Obtained for Internal Use. Leasehold improvements are
amortized over the shorter of the lease term or the estimated
useful life. Depreciable lives of property and equipment are as
follows:
|
|
|
|
|
Buildings
|
|
|
40 years
|
|
Leasehold improvements
|
|
|
3-17 years
|
|
Distribution equipment
|
|
|
5-10 years
|
|
Computer equipment and software
|
|
|
3-7 years
|
|
Maintenance, repairs and minor renewals are charged to expense
as incurred. Additions, major renewals and betterments to
property and equipment are capitalized.
Long-Lived
and Intangible Assets
In accordance with Statement of Financial Accounting Standards
No. 144 Accounting for the Impairment or Disposal of
Long-Lived Assets, the Company assesses potential
impairments to its long-lived assets when events or changes in
circumstances indicate that the carrying amount may not be fully
recoverable. If required, an impairment loss is recognized as
the difference between the carrying value and the fair value of
the assets. The gross carrying amount of the finite-lived
identifiable intangible assets of $157,318 and $151,069 at
January 3, 2009 and December 29, 2007, respectively,
are amortized over their remaining estimated lives ranging from
3 to 20 years. The net carrying amount was $94,268 and
$104,125 at January 3, 2009 and December 29, 2007,
respectively. Amortization expense was $15,877, $14,256 and
$11,536 for fiscal years 2008, 2007 and 2006, respectively.
The Company completed its required impairment analyses for 2008,
which yielded no impairments to the Companys long-lived
and other identifiable intangible assets.
Goodwill
Goodwill represents the excess of the purchase price over the
fair value of the identifiable net assets acquired in an
acquisition. Statement of Financial Accounting Standards
No. 142, Goodwill and Other Intangible Assets
(FAS 142) eliminated the amortization of
goodwill, but requires that goodwill be reviewed at least
annually for impairment.
In the fourth quarter of 2008, consistent with the drastic
decline in the capital markets in general, the Company
experienced a similar decline in the market value of its stock.
As a result, the Companys market capitalization was
significantly lower than its book value. The Companys
reporting units under FAS 142 are its regional operating
segments. While the Latin America region does not have any
goodwill, the Company conducted goodwill impairment tests in
each of its other regional reporting units during the fourth
quarter of 2008, which coincides with the timing of the
Companys normal annual impairment test. In performing this
test, the Company, among other things, consulted an independent
valuation advisor.
In accordance with FAS 142, the Company used a two step
process to test for goodwill impairment. The first step is to
determine if there is an indication of impairment by comparing
the estimated fair value of each reporting unit to its carrying
value including existing goodwill. Goodwill is considered
impaired if the carrying value of a
50
INGRAM
MICRO INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
reporting unit exceeds the estimated fair value. The Company
utilized a combination of income and market approaches to
estimate the fair value of its reporting units in the first step.
The income approach utilizes estimates of discounted cash flows
of the reporting units, which requires assumptions of, among
other things, the reporting units expected long-term
revenue trends, as well as estimates of profitability, changes
in working capital and long-term discount rates, all of which
require significant judgment. The income approach also requires
the use of appropriate discount rates that take into account the
current risks in the capital markets. The market approach
evaluates comparative market multiples applied to its reporting
units businesses to yield a second assumed value of each
reporting unit.
The Company compared a weighted average of the output from the
income and market approaches to the carrying value of each
reporting unit, which yielded an indication of impairment in
each of the North America, EMEA and Asia-Pacific reporting
units. The Company also compared the aggregate of the estimated
fair values of each of its four regional reporting units to its
overall market capitalization, taking into account an acceptable
control premium considered supportable based upon historical
comparable transactions.
Step two of the impairment test requires the Company to compute
a fair value of the assets and liabilities, including
identifiable intangible assets, within each of the three
reporting units with indications of impairment, and compare the
implied fair value of goodwill to its carrying value. The
results of step two indicated that the goodwill of each of the
North America, EMEA and Asia-Pacific reporting units was fully
impaired. As a result, the Company recorded a charge of $742,653
in the fourth quarter of 2008, which is made up of $243,190,
$24,125 and $475,338 in carrying value of goodwill, prior to the
impairment, in North America, EMEA and Asia-Pacific,
respectively (see Note 4 to the Companys consolidated
financial statements). This non-cash charge significantly
impacted the Companys equity and results of operations for
2008, but does not impact the Companys ongoing business
operations, liquidity, cash flow or compliance with covenants
for its credit facilities.
Concentration
of Credit Risk
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of
receivables from customers and vendors, as well as derivative
financial instruments. Credit risk with respect to trade
accounts receivable is limited due to the large number of
customers and their dispersion across geographic areas. No
single customer accounts for 10% or more of the Companys
net sales. The Company performs ongoing credit evaluations of
its customers financial conditions, obtains credit
insurance in certain locations and requires collateral in
certain circumstances. The Company maintains an allowance for
estimated credit losses.
Derivative
Financial Instruments
The Company operates in various locations around the world. The
Company reduces its exposure to fluctuations in foreign exchange
rates by creating offsetting positions through the use of
derivative financial instruments in situations where there are
not offsetting balances that create a natural hedge. The market
risk related to the foreign exchange agreements is offset by
changes in the valuation of the underlying items being hedged.
The Company currently does not use derivative financial
instruments for trading or speculative purposes, nor is the
Company a party to leveraged derivatives.
Foreign exchange risk is managed primarily by using forward
contracts to hedge foreign currency denominated receivables and
payables. Cross-currency interest rate swaps are used to hedge
foreign currency denominated principal and interest payments
related to intercompany loans.
All derivatives are recorded in the Companys consolidated
balance sheet at fair value. The estimated fair value of
derivative financial instruments represents the amount required
to enter into similar offsetting contracts with similar
remaining maturities based on quoted market prices. Changes in
the fair value of derivatives not designated as hedges are
recorded in current earnings.
51
INGRAM
MICRO INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The notional amount of forward exchange contracts is the amount
of foreign currency bought or sold at maturity. The notional
amount of interest rate swaps is the underlying principal amount
used in determining the interest payments exchanged over the
life of the swap. Notional amounts are indicative of the extent
of the Companys involvement in the various types and uses
of derivative financial instruments and are not a measure of the
Companys exposure to credit or market risks through its
use of derivatives.
Credit exposure for derivative financial instruments is limited
to the amounts, if any, by which the counterparties
obligations under the contracts exceed the obligations of the
Company to the counterparties. The Company manages the potential
risk of credit losses through careful evaluation of counterparty
credit standing, selection of counterparties from a limited
group of financial institutions and other contract provisions.
The following table lists the Companys derivative
financial instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year End
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Notional
|
|
|
Estimated
|
|
|
Notional
|
|
|
Estimated
|
|
|
|
Amounts
|
|
|
Fair Value
|
|
|
Amounts
|
|
|
Fair Value
|
|
|
Foreign exchange forward contracts
|
|
$
|
1,218,450
|
|
|
$
|
9,014
|
|
|
$
|
1,419,690
|
|
|
$
|
(12,865
|
)
|
Interest rate swap
|
|
|
200,000
|
|
|
|
(11,754
|
)
|
|
|
|
|
|
|
|
|
Fair
Value Measurement
Effective December 30, 2007, the first day of fiscal 2008,
the Company adopted the provisions of Statement of Financial
Accounting Standards No. 157, Fair Value
Measurements (FAS 157). FAS 157
defines fair value, establishes a framework for measuring fair
value in accordance with generally accepted accounting
principles and expands disclosures about fair value
measurements. In February 2008, the Financial Accounting
Standards Board issued Staff Position Nos.
157-1 and
157-2, which
partially deferred the effective date of FAS 157 for one
year for certain nonfinancial assets and liabilities and removed
certain leasing transactions from its scope. The Company does
not expect the implementation of
FSP 157-1
and 157-2 to
have a material impact on the Companys consolidated
financial position, results of operations or cash flows. In
October 2008, the Financial Accounting Standards Board issued
Staff Position
No. 157-3,
which clarifies the application of FAS 157 and demonstrates
how the fair value of a financial asset is determined when the
market for that financial asset is inactive.
FSP 157-3
became effective upon issuance. The implementation of this
standard did not have any impact on the Companys
consolidated financial positions, results of operations or cash
flows.
The carrying amounts of cash and cash equivalents, accounts
receivable, accounts payable and other accrued expenses
approximate fair value because of the short maturity of these
items. The carrying amounts of outstanding debt issued pursuant
to credit agreements approximate fair value because interest
rates over the term of these instruments approximate current
market interest rates.
Treasury
Stock
The Company accounts 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 the
Companys consolidated balance sheet.
Comprehensive
Income (Loss)
Comprehensive income is defined as the change in equity (net
assets) of a business enterprise during a period from
transactions and other events and circumstances from nonowner
sources and is comprised of net income (loss) and other
comprehensive income (loss).
52
INGRAM
MICRO INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The components of comprehensive income (loss) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Net income (loss)
|
|
$
|
(394,921
|
)
|
|
$
|
275,908
|
|
|
$
|
265,766
|
|
Changes in foreign currency translation adjustments and other
|
|
|
(186,061
|
)
|
|
|
152,315
|
|
|
|
85,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
(580,982
|
)
|
|
$
|
428,223
|
|
|
$
|
350,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income included in
stockholders equity totaled $74,691 and $260,752 at
January 3, 2009 and December 29, 2007, respectively,
and consisted primarily of foreign currency translation
adjustments.
Earnings
Per Share
The Company reports 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 (loss) by the weighted average
number of common shares outstanding during the reported period.
Diluted EPS uses the treasury stock method or the if-converted
method, where applicable, to compute the potential dilution that
would 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Net income (loss)
|
|
$
|
(394,921
|
)
|
|
$
|
275,908
|
|
|
$
|
265,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares
|
|
|
166,542,541
|
|
|
|
171,640,569
|
|
|
|
165,414,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
(2.37
|
)
|
|
$
|
1.61
|
|
|
$
|
1.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares including the dilutive effect of
stock-based awards (5,311,125 and 5,461,618 for 2007 and 2006,
respectively)
|
|
|
166,542,541
|
|
|
|
176,951,694
|
|
|
|
170,875,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
$
|
(2.37
|
)
|
|
$
|
1.56
|
|
|
$
|
1.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were approximately 12,048,000 outstanding stock-based
awards in 2008, all of which were not included in the
computation of diluted EPS because of the Companys net
loss for the year. There were approximately 1,399,000 and
1,606,000 outstanding stock-based awards in 2007 and 2006,
respectively, which 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, thereby
resulting in an antidilutive effect.
Income
Taxes
The Company estimates income taxes in each of the taxing
jurisdictions in which it operates. This process involves
estimating the actual current tax expense together with
assessing any temporary differences resulting from the different
treatment of certain items, such as the timing for recognizing
revenues and expenses for tax and financial reporting purposes.
These differences may result in deferred tax assets and
liabilities, which are included in the consolidated balance
sheet. The Company is required to assess the likelihood that the
deferred tax assets, which include net operating loss
carryforwards, tax credits and temporary differences that are
expected to be deductible in future years, will be recoverable
from future taxable income. In making that assessment, the
Company considers future market growth, forecasted earnings,
future taxable income, the mix of earnings in the jurisdictions
53
INGRAM
MICRO INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
in which it operates and prudent and feasible tax planning
strategies. If, based upon available evidence, recovery of the
full amount of the deferred tax assets is not likely, the
Company provides a valuation allowance on any amount not likely
to be realized. The Companys effective tax rate includes
the impact of not providing U.S. taxes on undistributed
foreign earnings considered indefinitely reinvested. Material
changes in the Companys estimates of cash, working capital
and long-term investment requirements in the various
jurisdictions in which it does business could impact the
Companys effective tax rate.
The provision for tax liabilities and recognition of tax
benefits involves evaluations and judgments of uncertainties in
the interpretation of complex tax regulations by various taxing
authorities. In situations involving uncertain tax positions
related to income tax matters, the Company does not recognize
benefits unless it is more likely than not that they will be
sustained. As additional information becomes available, or these
uncertainties are resolved with the taxing authorities,
revisions to these liabilities or benefits may be required,
resulting in additional provision for or benefit from income
taxes reflected in the Companys consolidated statement of
income.
Accounting
for Stock-Based Compensation
The Company uses the Black-Scholes option-pricing model to
determine the fair value of stock options. Stock-based
compensation expense is recorded for all stock options,
restricted stock and restricted stock units that are ultimately
expected to vest as the requisite service is rendered. The
Company recognizes these compensation costs, net of an estimated
forfeiture rate, on a straight-line basis over the requisite
service period of the award, which is the vesting term of
outstanding stock-based awards. The Company estimates the
forfeiture rate based on its historical experience during the
preceding five fiscal years.
New
Accounting Standards
In March 2008, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 161,
Disclosures about Derivative Instruments and Hedging
Activities an amendment of FASB Statement
No. 133 (FAS 161). FAS 161
requires enhanced disclosures about an entitys derivative
and hedging activities. Under FAS 161, entities are
required to provide enhanced disclosures about (a) how and
why an entity uses derivative instruments, (b) how
derivative instruments and related hedged items are accounted
for under Statement 133 and its related interpretations, and
(c) how derivative instruments and related hedged items
affect an entitys financial position, financial
performance, and cash flows. FAS 161 became effective for
the Company beginning January 4, 2009 (the first day of
fiscal 2009). Early adoption is encouraged. FAS 161 also
encourages, but does not require, comparative disclosures for
earlier periods at initial adoption. The Company does not expect
the provisions of FAS 161 to have a material impact on the
Companys disclosures in its consolidated financial
statements.
In December 2007, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards
No. 141(R), Business Combinations
(FAS 141R). FAS 141R supersedes Statement
of Financial Accounting Standards No. 141, Business
Combinations, and establishes principles and requirements
as to how an acquirer in a business combination recognizes and
measures in its financial statements: the identifiable assets
acquired, the liabilities assumed and any controlling interest;
the goodwill acquired in the business combination; or a gain
from a bargain purchase. FAS 141R also requires the
acquirer to record contingent consideration at the estimated
fair value at the time of purchase and establishes principles
for treating subsequent changes in such estimates which could
affect earnings in those periods. This statement also calls for
additional disclosure regarding the nature and financial effects
of the business combination. FAS 141R is to be applied
prospectively by the Company to business combinations completed
after January 4, 2009 (the first day of fiscal 2009). Early
adoption is prohibited. The Company will comply with the
requirements of FAS 141R if and when future acquisitions
occur.
In December 2007, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 160,
Noncontrolling Interests in Consolidated Financial
Statements an amendment of ARB No. 51
(FAS 160). FAS 160 establishes new
accounting and reporting standards for the noncontrolling
interest in
54
INGRAM
MICRO INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
a subsidiary and for the deconsolidation of a subsidiary.
FAS 160 also clarifies that changes in a parents
ownership interest in a subsidiary that do not result in
deconsolidation are equity transactions if the parent retains
its controlling financial interest and requires that a parent
recognize a gain or loss in net income when a subsidiary is
deconsolidated. The gain or loss will be measured using the fair
value of the noncontrolling equity investment on the
deconsolidation date. Moreover, FAS 160 includes expanded
disclosure requirements regarding the interests of the parent
and its noncontrolling interest. FAS 160 is effective for
the Company beginning January 4, 2009 (the first day of
fiscal 2009). Early adoption is prohibited, but upon adoption
FAS 160 requires the retroactive presentation and
disclosure related to existing minority interests. The Company
does not expect the provisions of FAS 160 to have a
material impact on the Companys consolidated financial
position, results of operations or cash flows.
In February 2007, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 159,
The Fair Value Option for Financial Assets and
Liabilities (FAS 159). FAS 159
permits companies to make an election to carry certain eligible
financial assets and liabilities at fair value, even if fair
value measurement has not historically been required for such
assets and liabilities under U.S. GAAP. FAS 159 became
effective for the Company beginning December 30, 2007 (the
first day of fiscal 2008). The Company did not elect the fair
value option to measure certain financial instruments. The
adoption of the provisions of FAS 159 did not have a
material impact on the Companys consolidated financial
position, results of operations or cash flows.
In November 2007, the Emerging Issues Task Force released Issue
No. 07-01
Accounting for Collaborative Arrangements
(EITF 07-01).
EITF 07-01
requires collaborators to present the results of activities for
which they act as the principal on a gross basis and report any
payments received from (made to) other collaborators based on
other applicable GAAP or, in the absence of other applicable
GAAP, based on analogy to authoritative accounting literature or
a reasonable, rational, and consistently applied accounting
policy election.
EITF 07-01
also clarified the determination of whether transactions within
a collaborative arrangement are part of a vendor-customer (or
analogous) relationship that are subject to EITF Issue
No. 01-9
Accounting for Consideration Given by a Vendor to a
Customer.
EITF 07-01
is effective for the Company beginning January 4, 2009 (the
first day of fiscal 2009). The Company does not expect the
provisions of
EITF 07-01
to have a material impact on the Companys consolidated
financial position, results of operations or cash flows.
|
|
Note 3
|
Reorganization
Costs
|
Starting the second quarter of 2008, the Company announced
cost-reduction programs, resulting in the rationalization and
re-engineering of certain roles and processes primarily at the
regional headquarters in EMEA and targeted reductions of
primarily administrative and back-office positions in North
America. Total costs of the actions incurred in EMEA were
$16,444, comprised of $14,900 of reorganization costs related to
employee termination benefits for workforce reductions of
approximately 280 employees and facility consolidations, as
well as $1,544 of other costs charged to SG&A expenses,
comprised of consulting, legal and other expenses associated
with implementing the reduction in workforce. In North America,
the total costs of the actions were $2,368, all of which were
reorganization costs related to employee termination benefits
for workforce reductions of approximately 220 employees and
other costs related to contract terminations for equipment
leases. Also during 2008, the Company announced cost-reduction
programs related to its Asia-Pacific operations, incurring
reorganization costs of $291, primarily related to employee
termination benefits of approximately 55 employees.
55
INGRAM
MICRO INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The reorganization costs and related payment activities in 2008,
and the remaining liability related to these detailed actions
are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts Paid
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
|
and Charged
|
|
|
|
|
|
Liability at
|
|
|
|
Reorganization
|
|
|
Against the
|
|
|
|
|
|
January 3,
|
|
|
|
Costs
|
|
|
Liability
|
|
|
Adjustments
|
|
|
2009
|
|
|
Employee termination benefits
|
|
$
|
14,588
|
|
|
$
|
(10,477
|
)
|
|
$
|
|
|
|
$
|
4,111
|
|
Facility costs
|
|
|
2,571
|
|
|
|
(15
|
)
|
|
|
|
|
|
|
2,556
|
|
Other costs
|
|
|
400
|
|
|
|
|
|
|
|
|
|
|
|
400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
17,559
|
|
|
$
|
(10,492
|
)
|
|
$
|
|
|
|
$
|
7,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company expects the remaining liabilities for the employee
termination benefits, facility costs and other costs to both be
substantially utilized by the end of 2018.
Prior to 2006, the Company launched other outsourcing and
optimization plans to improve operating efficiencies and to
integrate past acquisitions. 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. The remaining liabilities and payment activities in
2008 are summarized in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Amounts Paid
|
|
|
|
|
|
Remaining
|
|
|
|
Liability at
|
|
|
and Charged
|
|
|
|
|
|
Liability at
|
|
|
|
December 29,
|
|
|
Against the
|
|
|
|
|
|
January 3,
|
|
|
|
2007
|
|
|
Liability
|
|
|
Adjustments
|
|
|
2009
|
|
|
Facility costs
|
|
$
|
3,912
|
|
|
$
|
(795
|
)
|
|
$
|
(530
|
)
|
|
$
|
2,587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company expects the remaining liability for facility costs
to be fully utilized by the third quarter of 2015.
Included in the table above is a credit adjustment to
reorganization cost of $530 that the Company recorded in North
America for lower than expected costs to settle lease
obligations related to previous actions. In 2007, the Company
recorded a credit adjustment to reorganization costs of $1,091
consisting of $1,066 in North America for lower than expected
costs associated with employee termination benefits and facility
consolidations related to actions taken in prior years and $25
in EMEA for lower than expected costs associated with employee
termination benefits related to actions taken in prior years. In
2006, the Company recorded a credit adjustment to reorganization
costs of $1,727, consisting of: (i) $1,676 in North America
related to detailed actions taken in prior years for which the
Company reversed remaining reserves for a portion of a
restructured leased facility that management elected to reoccupy
during 2006; (ii) $34 in EMEA related to detailed actions
taken in prior years for which the Company incurred lower than
expected costs associated with employee termination benefits and
facility consolidations; and (iii) $17 in Asia-Pacific
related to detailed actions taken in prior years for which the
Company incurred lower than expected costs associated with a
facility consolidation.
|
|
Note 4
|
Acquisitions
and Disposition
|
In 2008, the Company acquired Eurequat SA in France, Intertrade
A.F. AG in Germany, Paradigm Distribution Ltd. in the United
Kingdom and Cantechs Group in China, all distributors offering
value-added distribution of automatic identification and data
capture/point of sale (AIDC/POS) technologies
and/or
mobile data to solutions providers and system integrators. These
acquisitions further expand the Companys value-added
distribution of AIDC/POS solutions in EMEA and in Asia-Pacific.
These entities were acquired for an aggregate cash price of
$12,347, including related acquisition costs, plus an estimated
earn-out of $882 to be paid in 2009, which has been
preliminarily allocated to the assets acquired and liabilities
assumed based on their estimated fair values on the transaction
date, including identifiable intangible assets of $7,586,
primarily related to vendor and customer relationships with
estimated useful lives of 10 years. The resulting goodwill
recorded was $3,608 and $1,584 in EMEA and Asia-Pacific,
respectively.
56
INGRAM
MICRO INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In 2003, the Company obtained full ownership in Ingram Macrotron
AG, a German-based distribution company, by acquiring the
remaining interest of approximately 3% held by minority
shareholders. Subsequently, court actions have been filed by
several of the minority shareholders contesting the adequacy of
the purchase price paid for their shares. In the fourth quarter
of 2008, based on available information, the Company recorded an
estimated liability of $5,786 to the minority shareholders for
an increased assessment of the value of the shares, which
resulted in the addition to EMEAs goodwill by the same
amount. A final resolution of the purchase price may result in
additional payments to the minority shareholders, which are
less, or greater, than the current accrual.
In the fourth quarter of 2008, the Company recorded a payable of
$1,000 to the sellers of AVAD for the final earn-out in
accordance with the 2005 provisions of the purchase agreement,
resulting in an increase of goodwill for the same amount.
In the fourth quarter of 2007, the Company closed the sale of
its Asian semiconductor business for a cash price of $18,245. As
a result, the Company recorded a pre-tax gain of $2,859, which
is reported as a reduction to SG&A expenses in the
Companys consolidated statement of income. The Company
allocated $5,758 of Asia-Pacific goodwill as part of the
disposition of the semiconductor business and the determination
of the associated gain on sale.
In the second quarter of 2007, the Company acquired certain
assets and liabilities of DBL Distributing Inc.
(DBL). DBL was acquired for $102,174, which includes
an initial cash price of $96,502, including related acquisition
costs, plus an estimated working capital adjustment of $5,672,
which is subject to a final
true-up to
be agreed to by the two parties. The purchase price was
allocated to the assets acquired and liabilities assumed based
on their estimated fair values on the transaction date,
resulting in goodwill of $59,720, trade names of $11,600 with
estimated useful lives of 20 years and other intangible
assets of $12,800 primarily related to customer relationships
and non-compete agreements with estimated useful lives of up to
eight years. In the first half of 2008, the Company made
adjustments to the purchase price allocation above, primarily
resulting from an increase in the balance of certain
preacquisition liabilities, by $6,930. These adjustments yielded
an increase of goodwill for the same amount. Under the terms of
the purchase agreement, the parties also agreed that $10,000 of
the purchase price would be held in an escrow account to cover
indemnification of any claims arising from pre-acquisition
contingent liabilities until the later of June 2008 or the final
resolution of any such claims. In March 2008, the Company served
a notice of claim with the seller for indemnification for
certain pre-acquisition liabilities in accordance with the terms
of the purchase agreement, and also notified the seller and the
escrow agent, Union Bank of California, that it was extending
the term of the escrow for an additional year. In June 2008, at
the request of the seller, the escrow funds were disbursed to
the seller by the escrow agent without any notice to the
Company. The $10,000 is now on deposit with another financial
institution and the Company has obtained a preliminary
injunction preventing any disposition of the funds from that
financial institution without order of the Court.
In the first quarter of 2007, the Company acquired all the
outstanding shares of VPN Dynamics and a minority interest of
49% in a related company, Securematics. The Companys
interests in these related entities were acquired for an initial
aggregate purchase price of $26,791, including contingent
consideration for the achievement of a milestone plus related
acquisition costs. The Company has a call option and the sellers
have a put option for the remaining 51% interest held by the
shareholders of Securematics at a purchase price of $1,000,
which both parties has agreed will be executed in March 2012.
The option price of $1,000 has been recorded in accrued expenses
in the Companys consolidated balance sheet at
January 3, 2009 and December 29, 2007. The results of
Securematics have been consolidated in accordance with Financial
Accounting Standards Board Interpretation No. 46
Consolidation of Variable Interest Entities. The
purchase price was allocated to the assets acquired and
liabilities assumed based on their estimated fair values on the
transaction date, resulting in goodwill of $20,691, trade names
of $3,800 with estimated useful lives of 20 years, other
intangible assets of $4,000, primarily related to customer
relationships and non-compete agreements with estimated useful
lives of up to five years, and a deferred tax liability of
$3,178 related to the intangible assets, none of which are
deductible for tax purposes. In 2008, the Company made an
adjustment to the purchase price allocation associated with
these acquisitions to reflect a reduction in tax-related
liabilities at the date of purchase totaling $57 and a decrease
of goodwill for the same amount. In connection with the
Companys
57
INGRAM
MICRO INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
acquisition of VPN Dynamics and Securematics, the parties agreed
that $4,100 of the purchase price shall be held in an escrow
account to cover any contingent liabilities under the purchase
agreement. The funds held in escrow are scheduled to be released
to the sellers in three installments over a period of two years
following the transaction date, if no claims are made. The
purchase agreement also provides for the Company to pay the
sellers additional contingent consideration of up to $3,200, if
certain performance levels are achieved, over the two-year
period following the date of acquisition. No such contingent
payments have been earned to date. Such payment, if any, will be
recorded as additional adjustments to the initial purchase price.
In 2007, the Company concluded favorable resolutions of certain
taxes associated with a previous acquisition in Asia-Pacific. As
a result, the Company made an adjustment to the purchase price
allocation associated with this acquisition to reflect
reductions in tax-related liabilities that existed at the dates
of purchase totaling $209, and a decrease of goodwill for the
same amount.
The changes in the carrying amount of goodwill, including the
2008 impairment charge (see Note 2 to the Companys
consolidated financial statements), for fiscal years 2008 and
2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
|
|
|
|
Asia-
|
|
|
Latin
|
|
|
|
|
|
|
America
|
|
|
EMEA
|
|
|
Pacific
|
|
|
America
|
|
|
Total
|
|
|
Balance at December 30, 2006
|
|
$
|
156,732
|
|
|
$
|
14,168
|
|
|
$
|
472,814
|
|
|
$
|
|
|
|
$
|
643,714
|
|
Acquisitions
|
|
|
78,611
|
|
|
|
|
|
|
|
(209
|
)
|
|
|
|
|
|
|
78,402
|
|
Disposition
|
|
|
|
|
|
|
|
|
|
|
(5,758
|
)
|
|
|
|
|
|
|
(5,758
|
)
|
Foreign currency translation
|
|
|
150
|
|
|
|
1,591
|
|
|
|
15,382
|
|
|
|
|
|
|
|
17,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 29, 2007
|
|
|
235,493
|
|
|
|
15,759
|
|
|
|
482,229
|
|
|
|
|
|
|
|
733,481
|
|
Acquisitions
|
|
|
7,873
|
|
|
|
9,394
|
|
|
|
1,584
|
|
|
|
|
|
|
|
18,851
|
|
Foreign currency translation
|
|
|
(176
|
)
|
|
|
(1,028
|
)
|
|
|
(8,475
|
)
|
|
|
|
|
|
|
(9,679
|
)
|
Impairment of goodwill
|
|
|
(243,190
|
)
|
|
|
(24,125
|
)
|
|
|
(475,338
|
)
|
|
|
|
|
|
|
(742,653
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 3, 2009
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All acquisitions for the periods presented above were not
material, individually or in aggregate, to the Company as a
whole and therefore, pro-forma financial information has not
been presented.
|
|
Note 5
|
Property
and Equipment
|
Property and equipment consist of the following:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year End
|
|
|
|
2008
|
|
|
2007
|
|
|
Land
|
|
$
|
5,442
|
|
|
$
|
5,684
|
|
Buildings and leasehold improvements
|
|
|
131,328
|
|
|
|
137,470
|
|
Distribution equipment
|
|
|
255,058
|
|
|
|
257,318
|
|
Computer equipment and software
|
|
|
387,374
|
|
|
|
347,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
779,202
|
|
|
|
748,368
|
|
Accumulated depreciation
|
|
|
(577,060
|
)
|
|
|
(566,952
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
202,142
|
|
|
$
|
181,416
|
|
|
|
|
|
|
|
|
|
|
58
INGRAM
MICRO INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Companys debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year End
|
|
|
|
2008
|
|
|
2007
|
|
|
North American revolving trade accounts receivable-backed
financing facilities
|
|
$
|
69,000
|
|
|
$
|
387,500
|
|
Asia-Pacific revolving trade accounts receivable-backed
financing facilities
|
|
|
29,035
|
|
|
|
|
|
Senior unsecured term loan
|
|
|
261,754
|
|
|
|
|
|
Revolving unsecured credit facilities and other debt
|
|
|
118,599
|
|
|
|
135,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
478,388
|
|
|
|
523,116
|
|
Current maturities of long-term debt
|
|
|
(121,724
|
)
|
|
|
(135,616
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
356,664
|
|
|
$
|
387,500
|
|
|
|
|
|
|
|
|
|
|
The Company has a revolving trade accounts receivable-backed
financing program in the U.S., which provides for up to $600,000
in borrowing capacity secured by substantially all
U.S.-based
receivables. The interest rate on this facility is dependent on
designated commercial paper rates plus a predetermined margin.
At January 3, 2009 and December 29, 2007, the Company
had borrowings of $69,000 and $387,500, respectively, under this
revolving trade accounts receivable-backed financing program in
the U.S. At the Companys option, the program may be
increased to as much as $650,000 at any time prior to its
maturity date of July 2010.
The Company has two revolving trade accounts receivable-backed
financing facilities in EMEA, which individually provide for
borrowing capacity of up to Euro 107 million, or
approximately $148,000, and Euro 230 million, or
approximately $319,000, at January 3, 2009. Both facilities
are with a financial institution that has an arrangement with a
related issuer of third-party commercial paper. These European
facilities require certain commitment fees, and borrowings under
both facilities incur financing costs at designated commercial
paper rates plus a predetermined margin. At January 3, 2009
and December 29, 2007, the Company had no borrowings under
these European revolving accounts receivable-backed financing
facilities. During the fourth quarter of 2008, the
Euro 230 million facility was extended to March 2009
at a reduced borrowing capacity amount of
Euro 132 million, effective in January 2009. The
Euro 107 million facility matures in July 2010.
The Company also has two revolving trade accounts receivable
facilities in EMEA, which individually provide for a maximum
borrowing capacity of 60 million British pound sterling, or
approximately $87,000, and Euro 90 million, or
approximately $125,000, respectively, at January 3, 2009.
At January 3, 2009 and December 29, 2007, the Company
had no borrowings outstanding under these European factoring
facilities. These facilities mature in March 2010.
The Company has a multi-currency revolving trade accounts
receivable-backed financing facility in Asia-Pacific, which
provides for up to 210 million Australian dollars, or
approximately $149,000, at January 3, 2009 of borrowing
capacity. The interest rate is dependent upon the currency in
which the drawing is made and is related to the local short-term
bank indicator rate for such currency. At January 3, 2009
and December 29, 2007, the Company had borrowings of
$29,035 and $0 under this Asia-Pacific multi-currency revolving
accounts receivable-backed financing facility. During the fourth
quarter of 2008, in addition to reducing the borrowing capacity
of this facility from its earlier 250 million Australian
dollars capacity, the Company extended the maturity date to
September 2011.
The Companys ability to access financing under all of its
trade accounts receivable-backed financing programs, as
discussed above, is dependent upon the level of eligible trade
accounts receivable as well as continued covenant compliance.
The Company may experience a lower level of eligible trade
accounts receivable resulting from declines in sales volumes or
failure to meet certain defined eligibility criteria for the
trade accounts
59
INGRAM
MICRO INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
receivable, such as receivables remaining assignable and free of
liens and dispute or set-off rights. At January 3, 2009,
the Companys actual aggregate available capacity under
these programs was approximately $1,290,000 based on eligible
trade accounts receivable available, of which $98,035 of such
borrowing capacity was used. The Companys two revolving
trade accounts receivable-backed financing facilities in EMEA
are affected by the level of market demand for commercial paper,
and could be impacted by the credit ratings of the third-party
issuer of commercial paper or
back-up
liquidity providers, if not replaced. In addition, in certain
situations, the Company could lose access to all or part of its
financing with respect to the EMEA facility maturing in March
2009, if the Companys authorization to collect the
receivables is rescinded by the relevant supplier under
applicable local law.
In July 2008, the Company entered into a $250,000 senior
unsecured term loan facility with a bank syndicate. The interest
rate on this facility is based on one-month LIBOR, plus a
variable margin that is based on the Companys debt ratings
and leverage ratio. Interest is payable monthly. Under the terms
of the agreement, the Company is also required to pay a minimum
of $3,125 of principal on the loan on a quarterly basis
beginning in November 2009 and a balloon payment of $215,625 at
the end of the loan term in August 2012. The agreement also
contains certain negative covenants, including restrictions on
funded debt and interest coverage, as well as customary
representations and warranties, affirmative covenants and events
of default. The proceeds of the term loan were used for general
corporate purposes, including refinancing existing indebtedness
and funding working capital.
In connection with the senior unsecured term loan facility
above, the Company entered into an interest rate swap agreement
for $200,000 of the term loan principal amount, the effect of
which was to swap the LIBOR portion of the floating-rate
obligation for a fixed-rate obligation. The fixed rate including
the variable margin is approximately 5%. The notional amount on
the interest rate swap agreement reduces by $3,125 quarterly
beginning November 2009, consistent with the amortization
schedule of the senior unsecured term loan discussed above. The
Company accounts for the interest rate swap agreement as a cash
flow hedge. At January 3, 2009, the mark-to-market value of
the interest rate swap amounted to $11,754 which is recorded in
other comprehensive income with an offsetting adjustment to the
hedged debt, bringing the total carrying value of the senior
unsecured term loan to $261,754.
The Company has a $275,000 revolving senior unsecured credit
facility with a bank syndicate in North America, which matures
in August 2012. The interest rate on the revolving senior
unsecured credit facility is based on LIBOR, plus a
predetermined margin that is based on the Companys debt
ratings and leverage ratio. At January 3, 2009 and
December 29, 2007, the Company had no borrowings under this
North American revolving senior unsecured credit facility. This
credit facility may also be used to issue letters of credit. At
January 3, 2009 and December 29, 2007, letters of
credit of $9,051 and $41,156, respectively, were issued to
certain vendors and financial institutions to support purchases
by its subsidiaries, payment of insurance premiums and flooring
arrangements. The Companys available capacity under the
agreement is reduced by the amount of any issued and outstanding
letters of credit.
In October 2008, the Company terminated its 100 million
Australian dollar senior unsecured credit facility with a bank
syndicate, which was due to expire in December 2008. During the
fourth quarter of 2008, the terminated facility was replaced
with a 20 million Australian dollar, or approximately
$14,000 at January 3, 2009, revolving senior unsecured
credit facility, which expires in December 2011. At
December 29, 2007, the Company had borrowings of $934 under
the former facility. The Company had no borrowings under the new
facility at January 3, 2009.
The Company also has additional lines of credit, short-term
overdraft facilities and other credit facilities with various
financial institutions worldwide, which provide for borrowing
capacity aggregating approximately $803,000 at January 3,
2009. Most of these arrangements are on an uncommitted basis and
are reviewed periodically for renewal. At January 3, 2009
and December 29, 2007, the Company had $118,599 and
$134,682, respectively, outstanding under these facilities. The
weighted average interest rate on the outstanding borrowings
under these facilities, which may fluctuate depending on
geographic mix, was 5.1% and 6.4% per
60
INGRAM
MICRO INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
annum at January 3, 2009 and December 29, 2007,
respectively. At January 3, 2009 and December 29,
2007, letters of credit totaling $31,607 and $30,232,
respectively, were issued principally to certain vendors to
support purchases by the Companys subsidiaries. The
issuance of these letters of credit reduces the Companys
available capacity under these agreements by the same amount.
The Company is required to comply with certain financial
covenants under the terms of some of its financing facilities,
including restrictions on funded debt and covenants related to
tangible net worth, leverage and interest coverage ratios, and
trade accounts receivable portfolio performance, including
metrics related to receivables and payables. The Company is also
restricted by other covenants, including but not limited to
restrictions on the amount of additional indebtedness it can
incur, dividends it can pay, and the amount of common stock that
it can repurchase annually. At January 3, 2009, the Company
was in compliance with all material covenants or other material
requirements set forth in its accounts receivable financing
programs and credit agreements or other agreements with the
Companys creditors as discussed above. The impairment
charge to goodwill of $742,653 in the fourth quarter of 2008 did
not affect the Companys compliance with any of its
covenants.
The Company accounts for income taxes under the asset and
liability method, which requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences
of events that have been included in the financial statements.
Under this method, deferred tax assets and liabilities are
determined based on the differences between the financial
statements and tax basis of assets and liabilities using enacted
tax rates in effect for the year in which the differences are
expected to reverse. The effect of a change in tax rates on
deferred tax assets and liabilities is recognized in income in
the period that includes the enactment date. The estimates and
assumptions the Company uses in computing the income taxes
reflected in its consolidated financial statements could differ
from the actual results reflected in its income tax returns
filed during the subsequent year. The Company records
adjustments based on filed returns as such returns are finalized
and resultant adjustments are identified.
The components of income (loss) before income taxes consist of
the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
United States
|
|
$
|
(150,887
|
)
|
|
$
|
122,268
|
|
|
$
|
133,399
|
|
Foreign
|
|
|
(231,251
|
)
|
|
|
262,970
|
|
|
|
233,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(382,138
|
)
|
|
$
|
385,238
|
|
|
$
|
367,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
INGRAM
MICRO INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The provision for (benefit from) income taxes consists of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
26,971
|
|
|
$
|
67,597
|
|
|
$
|
60,962
|
|
State
|
|
|
1,301
|
|
|
|
6,140
|
|
|
|
4,231
|
|
Foreign
|
|
|
60,841
|
|
|
|
68,919
|
|
|
|
38,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89,113
|
|
|
|
142,656
|
|
|
|
103,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(62,095
|
)
|
|
|
(19,256
|
)
|
|
|
(16,066
|
)
|
State
|
|
|
(13,014
|
)
|
|
|
373
|
|
|
|
1,030
|
|
Foreign
|
|
|
(1,221
|
)
|
|
|
(14,443
|
)
|
|
|
12,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(76,330
|
)
|
|
|
(33,326
|
)
|
|
|
(2,111
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
12,783
|
|
|
$
|
109,330
|
|
|
$
|
101,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The reconciliation of the statutory U.S. federal income tax
rate to the Companys effective tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
U.S. statutory rate
|
|
$
|
(133,748
|
)
|
|
$
|
134,833
|
|
|
$
|
128,567
|
|
Reversal of federal deferred tax liability
|
|
|
|
|
|
|
|
|
|
|
(801
|
)
|
State income taxes, net of federal income tax benefit
|
|
|
(7,701
|
)
|
|
|
3,816
|
|
|
|
2,692
|
|
Effect of international operations
|
|
|
(47,550
|
)
|
|
|
(74,380
|
)
|
|
|
(50,483
|
)
|
Effect of goodwill impairment
|
|
|
177,055
|
|
|
|
|
|
|
|
|
|
Effect of change in valuation allowance
|
|
|
24,695
|
|
|
|
41,977
|
|
|
|
22,092
|
|
Other
|
|
|
32
|
|
|
|
3,084
|
|
|
|
(500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total tax provision
|
|
$
|
12,783
|
|
|
$
|
109,330
|
|
|
$
|
101,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62
INGRAM
MICRO INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Deferred income taxes reflect the tax effect of temporary
differences between the carrying amount of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. Significant components of the
Companys net deferred tax assets and liabilities are as
follows:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year End
|
|
|
|
2008
|
|
|
2007
|
|
|
Net deferred tax assets and (liabilities):
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
111,096
|
|
|
$
|
101,302
|
|
Allowance on accounts receivable
|
|
|
17,687
|
|
|
|
19,306
|
|
Available tax credits
|
|
|
33,234
|
|
|
|
30,453
|
|
Inventories
|
|
|
12,534
|
|
|
|
3,383
|
|
Depreciation and amortization
|
|
|
52,816
|
|
|
|
(27,901
|
)
|
Employee benefits and compensation
|
|
|
36,006
|
|
|
|
45,437
|
|
Reserves and accruals
|
|
|
57,386
|
|
|
|
55,338
|
|
Other
|
|
|
2,466
|
|
|
|
3,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
323,225
|
|
|
|
231,256
|
|
Valuation allowance
|
|
|
(116,180
|
)
|
|
|
(91,485
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
207,045
|
|
|
$
|
139,771
|
|
|
|
|
|
|
|
|
|
|
The Company records net deferred tax assets to the extent it
believes these assets will more likely than not be realized. In
making such determination, the Company considers all available
positive and negative evidence, including future reversals of
existing taxable temporary differences, projected future taxable
income, tax planning strategies and recent financial operations.
In the event that the Company determines that it would be able
to realize its deferred income tax assets in the future in
excess of its net recorded amount, the Company would make an
adjustment to the valuation allowance which would reduce the
provision for income taxes.
Out of the amounts shown above, net current deferred tax assets
of $102,624 and $111,767 were included in other current assets
at January 3, 2009 and December 29, 2007,
respectively. Net non-current deferred tax assets of $104,421
and $28,004 were included in other assets as of January 3,
2009 and December 29, 2007, respectively. The net increase
in valuation allowance of $24,695 during 2008 primarily
represents additional allowance for net operating losses,
certain tax credits and other temporary items in certain
jurisdictions where it is more likely than not that the Company
will not recover all or a portion of these assets.
At January 3, 2009, the Company had net operating loss
carryforwards of $406,388 (a valuation allowance has been
provided related to $336,448 of this amount). Approximately 71%
of the remaining net operating loss carryforwards of $69,940
have no expiration date and the remainder expires through the
year 2027. The Company has also recorded deferred tax assets for
various tax credit carryforwards of $33,234, to which it has
applied a valuation allowance of $10,844. These include $32,113
of foreign tax credit carryforwards, which have a $10,437
valuation allowance. Of the gross amount recorded, approximately
$22,597 are subject to expiry through the year 2018.
In general, it is the practice and intention of the Company to
reinvest the earnings of its
non-U.S. subsidiaries
into
non-U.S. operations.
Such unremitted earnings may become subject to
U.S. taxation upon the remittance of dividends and under
certain other circumstances. If the Company were to distribute
these earnings, foreign tax credits may become available under
current law to reduce the resulting U.S. income tax
liability. Based on the projected cash flow needs, including
consideration of working capital and long-term investment
requirements of the Companys material foreign subsidiaries
and domestic operations, the Company has concluded that all of
its undistributed earnings in foreign subsidiaries as of
January 3, 2009, are indefinitely reinvested. As such, the
Company has not made a provision for U.S. or additional
foreign withholding taxes on any undistributed earnings of
63
INGRAM
MICRO INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
foreign subsidiaries. Determination of the amount of
unrecognized deferred tax liability related to these earnings is
not practicable.
Tax benefits in excess of (less than) the amount recorded upon
grant, resulting from the exercise of employee stock options and
other employee stock programs, are recorded as an increase
(decrease) in stockholders equity and were $(784) in
fiscal 2008 and $5,650 in fiscal 2007.
Effective December 31, 2006, the beginning of fiscal year
2007, the Company adopted the provisions of Financial Accounting
Standards Board Interpretation No. 48, Accounting for
Uncertainty in Income Taxes an interpretation of
FASB Statement No. 109 (FIN 48). The
adoption of FIN 48 resulted in an increase of $4,957 in the
Companys liability for unrecognized tax benefits, which
was accounted for as a reduction to its consolidated retained
earnings as of the beginning of 2007. As of the adoption date,
the Company had gross unrecognized tax benefits of $16,736,
substantially all of which, if recognized, would have impacted
the effective tax rate. The Company recognizes interest and
penalties related to unrecognized tax benefits in income tax
expense. As of the adoption date, the Company had estimated
accrued interest and penalties related to the unrecognized tax
benefits of $3,728. This amount was reduced by $1,272 and $609
during fiscal 2008 and 2007, respectively, primarily due to the
conclusion of the U.S. IRS audit for tax years 2001 through
2003 discussed below.
A reconciliation of the beginning and ending balances of the
total amounts of gross unrecognized tax benefits is as follows:
|
|
|
|
|
Gross unrecognized tax benefits at December 29, 2007
|
|
$
|
20,168
|
|
Increases in tax positions for prior years
|
|
|
144
|
|
Decreases in tax positions for prior years
|
|
|
(270
|
)
|
Increases in tax positions for current year
|
|
|
3,099
|
|
Decreases in tax positions for current year
|
|
|
(28
|
)
|
Settlements
|
|
|
(11,890
|
)
|
Lapse in statute of limitations
|
|
|
|
|
|
|
|
|
|
Gross unrecognized tax benefits at January 3, 2009
|
|
$
|
11,223
|
|
|
|
|
|
|
Substantially all of the unrecognized tax benefits of $11,223 at
January 3, 2009 would impact the effective tax rate, if
recognized.
The Company conducts business globally and, as a result, the
Company
and/or one
or more of its subsidiaries file income tax returns in the
U.S. federal and various state jurisdictions and in over
thirty foreign jurisdictions. In the normal course of business,
the Company is subject to examination by taxing authorities in
many of the jurisdictions in which it operates.
In the U.S., the Company concluded its IRS federal income tax
audit for tax years 2001 through 2003 during the first quarter
of 2007, effectively closing all years to IRS audit up through
2003. Based on the conclusion of the IRS audit, the Company
reversed tax liabilities of $4,875 in 2007, of which $3,128 was
related to a previously recorded FIN 48 reserve. During the
second quarter of 2007, the IRS initiated an examination of the
Companys federal income tax return for the tax years 2004
and 2005. In addition to the ongoing IRS audit for
2004-2005, a
number of U.S. state and local and foreign tax examinations
are currently ongoing.
The Company is engaged in continuous discussions and
negotiations with taxing authorities regarding tax matters in
the various jurisdictions, which resulted in an effective
settlement on several items, including issues related to
transfer pricing and hedge gains, in fiscal 2008. These
settlements resulted in a net reversal of FIN 48 tax
liabilities of $11,890 in 2008.
64
INGRAM
MICRO INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
It is possible that these ongoing tax examinations may be
resolved, that new tax exams may commence and that other issues
may be effectively settled within the next twelve months.
However, the Company does not expect its unrecognized tax
benefits to change significantly over that time.
|
|
Note 8
|
Fair
Value Measurements
|
As discussed in Note 2, FAS 157 requires that assets
and liabilities carried at fair value be 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 3, 2009, the Companys assets and
liabilities measured at fair value on a recurring basis included
cash equivalents of $619,463 and marketable trading securities
of $33,081 determined based on Level 1 criteria, as defined
above, and a derivative assets of $14,458 and derivative
liabilities of $17,198 determined based on Level 2
criteria. The change in the fair value of derivative instruments
for the year ended January 3, 2009 was a gain of $10,125,
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 loss on the
marketable trading securities was recognized in the income
statement to reflect these investments at fair value.
|
|
Note 9
|
Transactions
with Related Parties
|
In July 2005, the Company assumed from AVAD agreements with
certain representative companies owned by the former owners of
AVAD, who subsequently became employed with Ingram Micro. These
include agreements with two of the representative companies to
sell products on the Companys 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 $7,662 and $11,100, respectively, resulting in the
Companys recording of a commission expense of
approximately $97 and $200, respectively.
|
|
Note 10
|
Commitments
and Contingencies
|
In 2003, the Companys 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 the Companys opinion that it 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 the
Companys opinion that it has a probable risk of loss and
may be required to pay all or some of these taxes. Accordingly,
in the first quarter of 2007, the Company recorded a charge to
cost of sales of $33,754, consisting of $6,077 for commercial
taxes assessed for the period January 2002 to September 2002,
and $27,677 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, the Company released a portion of
this commercial tax reserve amounting to $8,224 and $3,620,
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 the Companys opinion, after consultation
with counsel, that the statute of limitations for an assessment
from Brazilian tax authorities had expired.
While the tax authorities may seek to impose interest and
penalties in addition to the tax as discussed above, the Company
continues to believe that it has valid defenses to the
assessment of interest and penalties, which as of
65
INGRAM
MICRO INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
January 3, 2009 potentially amount to approximately $13,300
and $14,600, respectively, based on the exchange rate prevailing
on that date of 2.330 Brazilian reais to the U.S. dollar.
Therefore, the Company currently does not anticipate
establishing an additional reserve for interest and penalties.
The Company will continue to vigorously pursue administrative
and judicial action to challenge the current, and any subsequent
assessments. However, the Company can make no assurances that it
will ultimately be successful in defending any such assessments,
if made.
In December 2007, the Sao Paulo Municipal Tax Authorities
assessed the Companys Brazilian subsidiary a commercial
service tax based upon its sales and licensing of software. The
assessment covers the years 2002 through 2006 and totaled
57.2 million Brazilian reais ($24,600 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 could make adjustments to the initial assessment
including assessments for the period after 2006, as well as
additional penalties and interest, which may be material. It is
managements opinion, after consulting with counsel, that
the Companys subsidiary has valid defenses against the
assessment of these taxes and penalties, or any subsequent
adjustments or additional assessments related to this matter.
Although the Company intends to vigorously pursue administrative
and judicial action to challenge the current assessment and any
subsequent adjustments or assessments, the Company can make no
assurances that it will ultimately be successful in its defense
of this matter.
In May 2007, the Company received a Wells Notice
from the SEC, which indicated that the SEC staff intends to
recommend an administrative proceeding against the Company
seeking disgorgement and prejudgment interest, though no dollar
amounts were specified in the notice. The SEC staff contends
that the Company failed to maintain adequate books and records
relating to certain of its transactions with McAfee Inc.
(formerly Network Associates, Inc.), and was a cause of
McAfees own securities-laws violations relating to the
filing of reports and maintenance of books and records. During
the second quarter of 2007, the Company recorded a reserve of
$15,000 for the current best estimate of the probable loss
associated with this matter based on discussions with the SEC
staff concerning the issues raised in the Wells Notice. No
resolution with the SEC has been reached at this point, however,
and there can be no assurance that such discussions will result
in a resolution of these issues. When the matter is resolved,
the final disposition and the related cash payment may exceed
the current accrual for the best estimate of probable loss. At
this time, it is also not possible to accurately predict the
timing of a resolution. The Company has responded to the Wells
Notice and continues to cooperate fully with the SEC on this
matter, which was first disclosed during the third quarter of
2004.
There are other various claims, lawsuits and pending actions
against the Company incidental to its operations. It is the
opinion of management that the ultimate resolution of these
matters will not have a material adverse effect on the
Companys consolidated financial position, results of
operations or cash flows.
As is customary in the IT distribution industry, the Company has
arrangements with certain finance companies that provide
inventory-financing facilities for its customers. In conjunction
with certain of these arrangements, the Company has agreements
with the finance companies that would require it 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 the Company still on hand
with the customer at any point in time, the Companys
repurchase obligations relating to inventory cannot be
reasonably estimated. Repurchases of inventory by the Company
under these arrangements have been insignificant to date.
In December 2008, the Company issued a guarantee to a third
party that provides financing for limited sales to a certain
customer of the Company, which accounted for less than 1% of the
Companys North American net sales. The guarantee requires
the Company to reimburse the third party for defaults by this
customer up to an aggregate of $5,000. The fair value of this
guarantee has been recognized as cost of sales to this customer
and is included in other accrued liabilities.
66
INGRAM
MICRO INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In 2007, the Company issued a guarantee to a third party that
provides financing to a limited number of the Companys
customers, which accounted for less than 1% of the
Companys North American net sales for both 2008 and 2007.
The guarantee requires the Company to reimburse the third party
for defaults by these customers up to an aggregate of $5,000.
The fair value of this guarantee has been recognized as cost of
sales to these customers and is included in other accrued
liabilities.
In December 2008, the Company renewed its 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; help desk services; and worldwide voice/PBX. This
agreement is cancelable at the option of the Company subject to
payment of termination fees.
The Company has an agreement with a leading global business
process outsource service provider. The services provided to the
Companys North America operations include selected
functions in finance and shared services, customer service,
vendor management, technical support and inside sales (excluding
field sales and management positions). This agreement expires in
September 2010, but is cancelable at the option of the Company
subject to payment of termination fees. The Company also has an
agreement with a leading global IT outsource service provider.
The services provided to the Companys North America
operations include certain IT functions related to its
application development functions. This agreement expires in
August 2011 and may be terminated by the Company subject to
payment of termination fees.
The Company also leases the majority of its facilities and
certain equipment under noncancelable operating leases. Rental
expense, including obligations related to IT outsourcing
services, for the years ended 2008, 2007 and 2006 was $159,667,
$143,034 and $118,979, respectively.
Future minimum rental commitments on operating leases that have
remaining noncancelable lease terms in excess of one year as
well as minimum contractual payments under the IT and business
process outsourcing agreements as of January 3, 2009 were
as follows:
|
|
|
|
|
2009
|
|
$
|
95,422
|
|
2010
|
|
|
79,133
|
|
2011
|
|
|
56,131
|
|
2012
|
|
|
40,155
|
|
2013
|
|
|
29,304
|
|
Thereafter
|
|
|
24,088
|
|
|
|
|
|
|
|
|
$
|
342,233
|
|
|
|
|
|
|
The above minimum payments have not been reduced by minimum
sublease rental income of $17,135 due in the future under
noncancelable sublease agreements as follows: $2,703, $2,604,
$2,635, $2,635, $2,550 and $4,008 in 2009, 2010, 2011, 2012,
2013 and thereafter, respectively.
|
|
Note 11
|
Segment
Information
|
The Company operates predominantly in a single industry segment
as a distributor of IT products and supply chain solutions
worldwide. The Companys operating segments are based on
geographic location, and the measure of segment profit is income
from operations. The Company does not allocate stock-based
compensation recognized (see Note 12 to consolidated
financial statements) to its operating units; therefore, the
Company is reporting this as a separate amount.
Geographic areas in which the Company operated during 2008
include North America (United States and Canada), EMEA (Austria,
Belgium, Denmark, Finland, France, Germany, Hungary, Italy, The
Netherlands, Norway, South Africa, Spain, Sweden, Switzerland,
and the United Kingdom), Asia-Pacific (Australia, The
67
INGRAM
MICRO INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Peoples Republic of China including Hong Kong, India,
Malaysia, New Zealand, Singapore, Sri Lanka, and Thailand), and
Latin America (Argentina, Brazil, Chile, Mexico, and the
Companys Latin American export operations in Miami).
Financial information by geographic segments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
14,191,995
|
|
|
$
|
13,923,186
|
|
|
$
|
13,584,978
|
|
EMEA
|
|
|
11,534,968
|
|
|
|
12,438,644
|
|
|
|
10,753,995
|
|
Asia-Pacific
|
|
|
6,904,640
|
|
|
|
7,133,417
|
|
|
|
5,537,485
|
|
Latin America
|
|
|
1,730,549
|
|
|
|
1,551,842
|
|
|
|
1,481,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
34,362,152
|
|
|
$
|
35,047,089
|
|
|
$
|
31,357,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
(49,011
|
)
|
|
$
|
219,835
|
|
|
$
|
225,183
|
|
EMEA
|
|
|
42,014
|
|
|
|
151,529
|
|
|
|
126,823
|
|
Asia-Pacific
|
|
|
(353,518
|
)
|
|
|
117,306
|
|
|
|
69,373
|
|
Latin America
|
|
|
43,191
|
|
|
|
(4,375
|
)
|
|
|
29,940
|
|
Stock-based compensation expense
|
|
|
(14,845
|
)
|
|
|
(37,875
|
)
|
|
|
(28,875
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(332,169
|
)
|
|
$
|
446,420
|
|
|
$
|
422,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
57,222
|
|
|
$
|
33,517
|
|
|
$
|
22,312
|
|
EMEA
|
|
|
18,390
|
|
|
|
8,228
|
|
|
|
10,636
|
|
Asia-Pacific
|
|
|
4,996
|
|
|
|
5,842
|
|
|
|
4,526
|
|
Latin America
|
|
|
751
|
|
|
|
2,168
|
|
|
|
1,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
81,359
|
|
|
$
|
49,755
|
|
|
$
|
39,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
36,241
|
|
|
$
|
33,212
|
|
|
$
|
32,071
|
|
EMEA
|
|
|
16,439
|
|
|
|
15,411
|
|
|
|
13,544
|
|
Asia-Pacific
|
|
|
13,583
|
|
|
|
13,162
|
|
|
|
13,143
|
|
Latin America
|
|
|
2,141
|
|
|
|
2,293
|
|
|
|
2,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
68,404
|
|
|
$
|
64,078
|
|
|
$
|
61,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The income (loss) from operations in 2008 includes the
impairment of goodwill totaling $742,653 ($243,190 in North
America; $24,125 in EMEA; and $475,338 in Asia-Pacific) as
discussed in Notes 2 and 4 to the Companys
consolidated financial statements. Also included in the 2008
income (loss) from operations are reorganization and
expense-reduction program costs of $18,573 ($1,838 of net
charges in North America; $16,444 of charges in EMEA; and $291
of charges in Asia-Pacific) as discussed in Note 3. In
addition, the income from operations in Latin America in 2008
includes the release of a portion of the 2007 commercial tax
reserve in Brazil totaling $8,224 as discussed in Note 10.
In 2007, the loss from operations in Latin America includes a
net commercial tax charge in Brazil of $30,134 and the income
from operations in North America includes a charge of $15,000
for estimated losses related to the SEC matter, both discussed
in Note 10.
68
INGRAM
MICRO INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year End
|
|
|
|
2008
|
|
|
2007
|
|
|
Identifiable assets
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
2,827,736
|
|
|
$
|
3,746,022
|
|
EMEA
|
|
|
2,739,600
|
|
|
|
3,128,859
|
|
Asia-Pacific
|
|
|
1,103,040
|
|
|
|
1,661,475
|
|
Latin America
|
|
|
413,097
|
|
|
|
438,645
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,083,473
|
|
|
$
|
8,975,001
|
|
|
|
|
|
|
|
|
|
|
In 2008, the Company revised its presentation of identifiable
assets to reclassify intercompany borrowings to liabilities. The
Company made conforming changes to the 2007 presentation of
identifiable assets, the affect of which was to decrease 2007
North America identifiable assets by $1,121,361, increase EMEA
by $437,813, increase Asia Pacific by $713,602 and decrease
Latin America by $30,054. There was no impact on the
Companys consolidated identifiable assets or on the
consolidated balance sheet as a whole.
|
|
Note 12
|
Stock-Based
Compensation
|
Compensation expense of $14,845, $37,875 and $28,875 for the
years ended January 3, 2009, December 29, 2007 and
December 30, 2006, respectively, was recognized in
accordance with Statement of Financial Accounting Standards
No. 123 (revised 2004) Share-Based Payment and
the related income tax benefits were $3,469, $9,588 and $6,829,
respectively.
The Company has elected to use the Black-Scholes option-pricing
model to determine the fair value of stock options. The
Black-Scholes model incorporates various assumptions including
volatility, expected life, and interest rates. The expected
volatility is based on the historical volatility of the
Companys common stock over the most recent period
commensurate with the estimated expected life of the
Companys stock options. The expected life of an award is
based on historical experience and the terms and conditions of
the stock-based awards granted to employees. The fair value of
options granted in the years ended January 3, 2009,
December 29, 2007 and December 30, 2006 was estimated
using the Black-Scholes option-pricing model assuming no
dividends and using the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
2008
|
|
2007
|
|
2006
|
|
Expected life of stock options
|
|
4.5 years
|
|
4.5 years
|
|
4.0 years
|
Risk-free interest rate
|
|
3.16%
|
|
4.67%
|
|
4.70%
|
Expected stock volatility
|
|
32.9%
|
|
37.8%
|
|
40.0%
|
Weighted-average fair value of options granted
|
|
$5.79
|
|
$7.95
|
|
$7.14
|
Equity
Incentive Plan
The Company currently has a single equity-based incentive plan
approved by its stockholders, the Ingram Micro Inc. Amended and
Restated 2003 Equity Incentive Plan (the 2003 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 the Companys
Board of Directors. Under the 2003 Plan, the existing authorized
pool of shares available for grant was converted to a fungible
pool, whereas the authorized share limit will be reduced by one
share for every share subject to a stock option or stock
appreciation right granted and 1.9 shares for every share
granted under any award other than an option or stock
appreciation right. The Company grants restricted stock and
restricted stock units, in addition to stock options, to key
employees and members of the Companys Board of Directors.
Options granted generally vest over a period of
69
INGRAM
MICRO INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
three years and have expiration dates not longer than
10 years. A portion of the restricted stock and restricted
stock units vest over a time period of one to three years. The
remainder of the restricted stock and restricted stock units
vests upon achievement of certain performance measures based on
earnings growth and return on invested capital over a three-year
period. As of January 3, 2009, approximately
10,779,000 shares were available for grant under the 2003
Plan, taking into account granted options, time vested
restricted stock units/awards and performance vested restricted
stock units assuming maximum achievement.
During 2008, 2007 and 2006, the Company granted a total of
18,540, 14,737, and 39,389 shares, respectively, of
restricted Class A Common Stock to board members under the
2003 Plan. In addition, the Company granted to board members a
total of 41,450, 35,577 and 6,752 in 2008, 2007 and 2006,
respectively, of restricted stock units convertible upon vesting
to the same number of shares of Class A Common Stock under
the 2003 Plan. These shares have no purchase price and vest over
a one-year period. In 2008, 2007 and 2006, the Company granted
to certain employees 1,697,733, 1,574,894 and 1,374,144,
respectively, restricted stock units convertible upon vesting to
the same number of Class A Common Stock under the 2003 Plan.
During 2008 and 2007, 1,111,822 and 290,121, respectively, of
previously granted restricted stock units vested. Approximately
343,000 and 94,000 shares, respectively, were withheld to
satisfy the employees minimum statutory obligation for the
applicable taxes and cash was remitted to the appropriate taxing
authorities. Total payments for the employees tax
obligations to the taxing authorities were approximately $5,398
and $1,961 in 2008 and 2007, respectively. The withheld shares
had the effect of share repurchases by the Company as they
reduced and retired the number of shares that would have
otherwise been issued as a result of the vesting.
Stock
Award Activity
Stock option activity under the 2003 Plan was as follows for the
three years ended January 3, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Contractual
|
|
|
Aggregate
|
|
|
|
No. of Shares
|
|
|
Average
|
|
|
Term
|
|
|
Intrinsic
|
|
|
|
(in 000s)
|
|
|
Price
|
|
|
(in Years)
|
|
|
Value
|
|
|
Outstanding at December 31, 2005
|
|
|
30,558
|
|
|
$
|
15.61
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,162
|
|
|
|
19.01
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(7,001
|
)
|
|
|
14.02
|
|
|
|
|
|
|
|
|
|
Forfeited/cancelled/expired
|
|
|
(1,365
|
)
|
|
|
27.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 30, 2006
|
|
|
23,354
|
|
|
|
15.54
|
|
|
|
5.9
|
|
|
|
|
|
Granted
|
|
|
1,321
|
|
|
|
20.69
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(4,624
|
)
|
|
|
14.42
|
|
|
|
|
|
|
|
|
|
Forfeited/cancelled/expired
|
|
|
(1,185
|
)
|
|
|
25.67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 29, 2007
|
|
|
18,866
|
|
|
|
15.59
|
|
|
|
5.4
|
|
|
|
|
|
Granted
|
|
|
1,338
|
|
|
|
17.80
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,639
|
)
|
|
|
14.19
|
|
|
|
|
|
|
|
|
|
Forfeited/cancelled/expired
|
|
|
(1,106
|
)
|
|
|
20.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 3, 2009
|
|
|
17,459
|
|
|
|
15.57
|
|
|
|
4.6
|
|
|
$
|
12,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at January 3, 2009
|
|
|
17,275
|
|
|
|
15.54
|
|
|
|
4.1
|
|
|
$
|
12,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at January 3, 2009
|
|
|
16,191
|
|
|
|
15.33
|
|
|
|
4.3
|
|
|
$
|
12,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70
INGRAM
MICRO INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The aggregate intrinsic value in the table above represents the
difference between the Companys closing stock price on
January 3, 2009 and the option exercise price, multiplied
by the number of
in-the-money
options on January 3, 2009. This amount changes based on
the fair market value of the Companys common stock. Total
intrinsic value of stock options exercised in 2008, 2007 and
2006 was $6,458, $28,235, and $42,128, respectively. Total fair
value of stock options vested and expensed was $8,403, $17,536
and $20,526 for 2008, 2007 and 2006, respectively. As of
January 3, 2009, the Company expects $8,058 of total
unrecognized compensation cost related to stock options to be
recognized over a weighted-average period of approximately
1.6 years.
Cash received from stock option exercises in 2008, 2007 and 2006
was $23,256, $66,698 and $98,129, respectively, and the actual
benefit realized for the tax deduction from stock option
exercises of the share-based payment awards totaled $1,511,
$7,369 and $10,580 in 2008, 2007 and 2006, respectively.
The following table summarizes information about stock options
outstanding and exercisable at January 3, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
Number
|
|
|
Weighted-
|
|
|
Weighted-
|
|
|
Number
|
|
|
Weighted-
|
|
|
|
Outstanding at
|
|
|
Average
|
|
|
Average
|
|
|
Exercisable at
|
|
|
Average
|
|
|
|
January 3,
|
|
|
Remaining
|
|
|
Exercise
|
|
|
January 3,
|
|
|
Exercise
|
|
Range of Exercise Prices
|
|
2009 (in 000s)
|
|
|
Life
|
|
|
Price
|
|
|
2009 (in 000s)
|
|
|
Price
|
|
|
$10.15 $12.35
|
|
|
4,271
|
|
|
|
3.0
|
|
|
$
|
11.33
|
|
|
|
4,267
|
|
|
$
|
11.33
|
|
$12.56 $15.81
|
|
|
3,864
|
|
|
|
4.5
|
|
|
|
14.25
|
|
|
|
3,864
|
|
|
|
14.25
|
|
$16.10 $19.93
|
|
|
8,267
|
|
|
|
5.1
|
|
|
|
17.73
|
|
|
|
7,344
|
|
|
|
17.71
|
|
$20.00 $21.60
|
|
|
1,057
|
|
|
|
8.0
|
|
|
|
20.69
|
|
|
|
716
|
|
|
|
20.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,459
|
|
|
|
4.6
|
|
|
|
15.57
|
|
|
|
16,191
|
|
|
|
15.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercisable totaled approximately 16,191,000,
15,665,000 and 17,845,000 at January 3, 2009,
December 29, 2007 and December 30, 2006, respectively,
at weighted-average exercise prices of $15.33, $14.90 and
$15.08, respectively.
Activity related to non-vested restricted stock and restricted
stock units was as follows for the three years ended
January 3, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
Number of
|
|
|
Average
|
|
|
|
Shares
|
|
|
Grant Date
|
|
|
|
(in 000s)
|
|
|
Fair Value
|
|
|
Non-vested at December 31, 2005
|
|
|
10
|
|
|
$
|
18.43
|
|
Granted
|
|
|
1,420
|
|
|
|
19.45
|
|
Vested
|
|
|
(4
|
)
|
|
|
19.66
|
|
Forfeited
|
|
|
(43
|
)
|
|
|
19.42
|
|
|
|
|
|
|
|
|
|
|
Non-vested at December 30, 2006
|
|
|
1,383
|
|
|
|
19.49
|
|
Granted
|
|
|
1,625
|
|
|
|
20.60
|
|
Vested
|
|
|
(329
|
)
|
|
|
19.41
|
|
Forfeited
|
|
|
(187
|
)
|
|
|
19.95
|
|
|
|
|
|
|
|
|
|
|
Non-vested at December 29, 2007
|
|
|
2,492
|
|
|
|
20.19
|
|
Granted
|
|
|
1,758
|
|
|
|
17.70
|
|
Vested
|
|
|
(1,112
|
)
|
|
|
19.64
|
|
Forfeited
|
|
|
(462
|
)
|
|
|
17.93
|
|
|
|
|
|
|
|
|
|
|
Non-vested at January 3, 2009
|
|
|
2,676
|
|
|
|
19.17
|
|
|
|
|
|
|
|
|
|
|
71
INGRAM
MICRO INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As of January 3, 2009, the unrecognized stock-based
compensation cost related to non-vested restricted stock and
restricted stock units was $13,272. The Company expects this
cost to be recognized over a remaining weighted-average period
of approximately 1.5 years.
Employee
Benefit Plans
The Companys U.S.-based employee benefit plans permit
eligible employees to make contributions up to certain limits,
which are matched by the Company at stipulated percentages. The
Companys contributions charged to expense were $4,450 in
2008, $4,099 in 2007 and $3,365 in 2006.
Share
Repurchase Program
In November 2007, the Companys Board of Directors
authorized a share repurchase program, through which the Company
may purchase up to $300,000 of its outstanding shares of common
stock, over a three-year period. Under the program, the Company
may repurchase shares in the open market and through privately
negotiated transactions. The repurchases will be 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.
The stock repurchase program activity for the year ended
January 3, 2009 is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Weighted
|
|
|
|
|
|
|
Repurchased
|
|
|
Average
|
|
|
Net Amount
|
|
|
|
(in 000s)
|
|
|
Price Per Share
|
|
|
Repurchased
|
|
|
Cumulative balance at December 29, 2007
|
|
|
1,302
|
|
|
$
|
19.26
|
|
|
$
|
25,061
|
|
Repurchased shares of common stock
|
|
|
14,006
|
|
|
|
15.87
|
|
|
|
222,346
|
|
Issued shares of common stock
|
|
|
(56
|
)
|
|
|
19.67
|
|
|
|
(1,093
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative balance at January 3, 2009
|
|
|
15,252
|
|
|
|
16.15
|
|
|
$
|
246,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classes
of Common Stock
The Company has two classes of Common Stock, consisting of
500,000,000 authorized shares of $0.01 par value
Class A Common Stock and 135,000,000 authorized shares of
$0.01 par value Class B Common Stock, and 25,000,000
authorized shares of $0.01 par value Preferred Stock.
72
INGRAM
MICRO INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
There were no issued and outstanding shares of Class B
Common Stock during the three-year period ended January 3,
2009. The detail of changes in the number of outstanding shares
of Class A Common Stock for the three-year period ended
January 3, 2009, is as follows:
|
|
|
|
|
|
|
Class A
|
|
|
|
Common Stock
|
|
|
|
(in 000s)
|
|
|
December 31, 2005
|
|
|
162,366
|
|
Stock options exercised
|
|
|
7,001
|
|
Release of restricted stock units
|
|
|
2
|
|
Grant of restricted Class A Common Stock
|
|
|
39
|
|
|
|
|
|
|
December 30, 2006
|
|
|
169,408
|
|
Stock options exercised
|
|
|
4,624
|
|
Release of restricted stock units
|
|
|
196
|
|
Grant of restricted Class A Common Stock
|
|
|
15
|
|
Repurchase of Class A Common Stock
|
|
|
(1,301
|
)
|
|
|
|
|
|
December 29, 2007
|
|
|
172,942
|
|
Stock options exercised
|
|
|
1,639
|
|
Release of restricted stock units
|
|
|
692
|
|
Grant of restricted Class A Common Stock
|
|
|
19
|
|
Issuance of treasury shares, net of shares withheld for employee
taxes
|
|
|
44
|
|
Repurchase of Class A Common Stock
|
|
|
(14,006
|
)
|
|
|
|
|
|
January 3, 2009
|
|
|
161,330
|
|
|
|
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Charged to
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
Beginning
|
|
|
Costs and
|
|
|
|
|
|
|
|
|
at End of
|
|
Description
|
|
of Year
|
|
|
Expenses
|
|
|
Deductions
|
|
|
Other(*)
|
|
|
Year
|
|
|
Allowance for doubtful accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
$
|
71,896
|
|
|
$
|
25,532
|
|
|
$
|
(24,502
|
)
|
|
$
|
(6,744
|
)
|
|
$
|
66,182
|
|
2007
|
|
|
68,298
|
|
|
|
14,058
|
|
|
|
(16,060
|
)
|
|
|
5,600
|
|
|
|
71,896
|
|
2006
|
|
|
74,761
|
|
|
|
16,090
|
|
|
|
(24,061
|
)
|
|
|
1,508
|
|
|
|
68,298
|
|
Allowance for sales returns:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
$
|
11,259
|
|
|
$
|
706
|
|
|
$
|
(4,222
|
)
|
|
$
|
(287
|
)
|
|
$
|
7,456
|
|
2007
|
|
|
9,998
|
|
|
|
613
|
|
|
|
(559
|
)
|
|
|
1,207
|
|
|
|
11,259
|
|
2006
|
|
|
7,070
|
|
|
|
762
|
|
|
|
(15
|
)
|
|
|
2,181
|
|
|
|
9,998
|
|
|
|
|
(*) |
|
Other includes recoveries, acquisitions, and the
effect of fluctuation in foreign currency. |
74
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Ingram Micro Inc.:
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of income,
stockholders equity and cash flows present fairly, in all
material respects, the financial position of Ingram Micro Inc.
and its subsidiaries at January 3, 2009 and
December 29, 2007, and the results of their operations and
their cash flows for each of the three years in the period ended
January 3, 2009 in conformity with accounting principles
generally accepted in the United States of America. In addition,
in our opinion, the financial statement schedule listed in the
accompanying index presents fairly, in all material respects,
the information set forth therein when read in conjunction with
the related consolidated financial statements. Also in our
opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of
January 3, 2009, based on criteria established in Internal
Control Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO).
The Companys management is responsible for these financial
statements and financial statement schedule, for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting, included in Managements Report on
Internal Control over Financial Reporting appearing under
Item 9A. Our responsibility is to express opinions on these
financial statements, on the financial statement schedule, and
on the Companys internal control over financial reporting
based on our integrated audits. We conducted our audits in
accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we
plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material
misstatement and whether effective internal control over
financial reporting was maintained in all material respects. Our
audits of the financial statements included examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating the
overall financial statement presentation. Our audit of internal
control over financial reporting included obtaining an
understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also
included performing such other procedures as we considered
necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.
As discussed in Note 7 to the consolidated financial
statements, the Company changed the manner in which it accounts
for the financial statement recognition and measurement of
uncertain tax positions in 2007.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Orange County, California
March 3, 2009
75
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
There have been no changes in our independent accountants or
disagreements with such accountants on accounting principles or
practices or financial statement disclosures.
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
Evaluation of Disclosure Controls and
Procedures. We maintain disclosure controls
and procedures, as such term is defined in
Rule 13a-15(e)
under the Securities Exchange Act of 1934 (the Exchange
Act), that are designed to ensure that information
required to be disclosed by us in reports that we file or submit
under the Exchange Act is recorded, processed, summarized, and
reported within the time periods specified in Securities and
Exchange Commission rules and forms, and that such information
is accumulated and communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating our disclosure controls
and procedures, management recognized that disclosure controls
and procedures, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the
objectives of the disclosure controls and procedures are met.
Additionally, in designing disclosure controls and procedures,
our management necessarily was required to apply judgment in
evaluating the cost-benefit relationship of those disclosure
controls and procedures. The design of any disclosure controls
and procedures also is based in part upon certain assumptions
about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated
goals under all potential future conditions.
Based on their evaluation as of the end of the period covered by
this Annual Report on
Form 10-K,
our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures were
effective in providing reasonable assurance that the objectives
of the disclosure controls and procedures are met.
Managements Report on Internal Control over Financial
Reporting. Our management is responsible for
establishing and maintaining adequate internal control over
financial reporting as defined in
Rule 13a-15(f)
of the Securities Exchange Act of 1934. Because of its inherent
limitations, internal control over financial reporting may not
prevent or detect all misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies
or procedures may deteriorate.
We assessed the effectiveness of the Companys internal
control over financial reporting as of January 3, 2009. In
making this assessment, we used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control Integrated
Framework. Based on our assessment using those criteria, we
concluded that our internal control over financial reporting was
effective as of January 3, 2009.
The effectiveness of our internal control over financial
reporting as of January 3, 2009 has been audited by
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in their report which appears in this
Form 10-K.
Changes in Internal Control over Financial
Reporting. There was no change in our internal
control over financial reporting that occurred during the
quarterly period ended January 3, 2009 that has materially
affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
None.
76
PART III
Information regarding executive officers required by
Item 401 of
Regulation S-K
is furnished in a separate disclosure in Part I of this
report, under the caption Executive Officers of the
Company, because we will not furnish such information in
our definitive Proxy Statement prepared in accordance with
Schedule 14A.
The Notice and Proxy Statement for the 2009 Annual Meeting of
Shareowners, to be filed pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended, which is
incorporated by reference in this Annual Report on
Form 10-K
pursuant to General Instruction G (3) of
Form 10-K,
will provide the remaining information required under
Part III (Items 10, 11, 12, 13 and 14).
PART IV
|
|
ITEM 15.
|
EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
|
|
|
(a)1.
|
Financial
Statements
|
See Index to Consolidated Financial Statements under
Item 8. Financial Statements and Supplemental
Data of this Annual Report.
|
|
(a)2.
|
Financial
Statement Schedules
|
See Financial Statement Schedule II
Valuation and Qualifying Accounts of this Annual Report
under Item 8. Financial Statements and Supplemental
Data.
|
|
|
|
|
Exhibit No.
|
|
Exhibit
|
|
|
3
|
.1
|
|
Certificate of Incorporation of the Company (incorporated by
reference to Exhibit 3.01 to the Companys
Registration Statement on
Form S-1
(File
No. 333-08453))
|
|
3
|
.2
|
|
Certificate of Amendment of the Certificate of Incorporation of
the Company dated as of June 5, 2001 (incorporated by
reference to Exhibit 3.2 to the Companys Registration
Statement on
Form S-4)
|
|
3
|
.3
|
|
Amended and Restated Bylaws of the Company dated
February 21, 2007 (incorporated by reference to
Exhibit 3.2 to the Companys Current Report on
Form 8-K
filed February 21, 2007)
|
|
10
|
.1
|
|
Compensation Program Ingram Micro Inc. Compensation
Policy for Members of the Board of Directors, as amended and
restated as of December 31, 2008 (incorporated by reference
to Exhibit 10.1 to the Companys Current Report on
Form 8-K
filed December 23, 2008, the December 2008
8-K)
|
|
10
|
.2
|
|
Retirement Program Ingram Micro Inc. Board of
Directors Deferred Compensation Plan, effective
December 31, 2008 and related Adoption Agreement
(incorporated by reference to Exhibit 10.2 to the December
2008 8-K)
|
|
10
|
.3
|
|
Retirement Program Ingram Micro Amended and Restated
401(k) Investment Plan (401K Plan) (incorporated by
reference to Exhibit 10.6 to the Companys Annual
Report on
Form 10-K
for the 2005 fiscal year)
|
|
10
|
.4
|
|
Retirement Program First Amendment to 401K Plan
(incorporated by reference to Exhibit 10.4 to the
Companys Annual Report on
Form 10-K
for the 2006 fiscal year, the 2006
10-K)
|
|
10
|
.5
|
|
Retirement Program Second Amendment to 401K Plan
(incorporated by reference to Exhibit 10.5 to the 2006
10-K)
|
|
10
|
.6
|
|
Retirement Program Third Amendment to 401K Plan
|
|
10
|
.7
|
|
Retirement Program Fourth Amendment to 401K Plan
(incorporated by reference to Exhibit 10.4 to the December
2008 8-K)
|
|
10
|
.8
|
|
Retirement Program Fifth Amendment to 401K Plan
(incorporated by reference to Exhibit 10.5 to the December
2008 8-K)
|
|
10
|
.9
|
|
Retirement Program Sixth Amendment to 401K Plan
|
77
|
|
|
|
|
Exhibit No.
|
|
Exhibit
|
|
|
10
|
.10
|
|
Retirement Program Ingram Micro Inc. Supplemental
Investment Savings Plan, amended and restated as of
December 31, 2008 and related Adoption Agreement
(incorporated by reference to Exhibit 10.3 to the December
2008 8-K)
|
|
10
|
.11
|
|
Ingram Micro Inc. Amended and Restated 2003 Equity Incentive
Plan (incorporated by reference to Exhibit 10.1 to the
Companys Quarterly Report on
Form 10-Q
for the 2008 quarter ended June 28, 2008, the Q2 2008
10-Q)
|
|
10
|
.12
|
|
Ingram Micro Inc. 2008 Executive Incentive Plan (incorporated by
reference to Exhibit 10.2 to the Q2 2008
10-Q)
|
|
10
|
.13
|
|
Ingram Micro Inc. Executive Officer Severance Policy, amended
and restated September 10, 2008 (incorporated by reference
to Exhibit 10.1 to the Companys Current Report on
Form 8-K
filed on September 12, 2008)
|
|
10
|
.14
|
|
Employment Agreement as of June 1, 2005 between Ingram
Micro and Kent B. Foster (incorporated by reference to
Exhibit 99.1 to the Current Report on
Form 8-K
filed on June 6, 2005)
|
|
10
|
.15
|
|
Receivables Funding Agreement, dated July 29, 2004, among
General Electric Capital Corporation, the Company, and Ingram
Funding Inc. (incorporated by reference to Exhibit 10.54 to
the Companys Quarterly Report on
Form 10-Q
for the quarter ended July 3, 2004, the 2004 Q2
10-Q)
|
|
10
|
.16
|
|
Receivables Sale Agreement, dated July 29, 2004 between the
Company and Ingram Funding Inc. (incorporated by reference to
Exhibit 10.55 to the 2004 Q2
10-Q)
|
|
10
|
.17
|
|
Amendment No. 1 dated as of March 22, 2006 to
Receivables Sale Agreement and Receivables Funding Agreement
dated as of July 29, 2004 (incorporated by reference to
Exhibit 10.1 to the Companys Current Report on
Form 8-K
filed on March 28, 2006)
|
|
10
|
.18
|
|
Amendment No. 2 dated as of July 21, 2006 to
Receivables Sale Agreement and Receivables Funding Agreement
dated as of July 29, 2004 (incorporated by reference to
Exhibit 10.1 to the Companys Current Report on
Form 8-K
filed on July 25, 2006)
|
|
10
|
.19
|
|
Credit Agreement dated effective as of August 23, 2007
among Ingram Micro Inc. and its subsidiaries Ingram Micro
Coordination Center B.V.B.A. and Ingram Micro Europe Treasury
LLC, Bank of Nova Scotia, as administrative agent, Bank of
America, N.A., as syndication agent, and the lenders party
thereto (the August 2007 Credit Agreement,
incorporated by reference to Exhibit 10.1 to the
Companys Current Report on
Form 8-K
filed on August 24, 2007)
|
|
10
|
.20
|
|
Amendment No. 1, dated as of July 17, 2008 to the
August 2007 Credit Agreement (incorporated by reference to
Exhibit 10.2 to the Companys Current Report on
Form 8-K
filed on July 21, 2008, the July 2008
8-K)
|
|
10
|
.21
|
|
Credit Agreement, dated as of July 17, 2008, with The Bank
of Nova Scotia, as administrative agent, ABN Amro Bank N.V. and
BNP Paribas, as co-syndication agents, and various other lenders
(incorporated by reference to Exhibit 10.1 to the July 2008
8-K)
|
|
14
|
.1
|
|
Ingram Micro Code of Conduct (incorporated by reference to
Exhibit 99.1 to the Companys Current Report on
Form 8-K
filed on November 13, 2007)
|
|
21
|
.1
|
|
Subsidiaries of the Registrant
|
|
23
|
.1
|
|
Consent of Independent Registered Public Accounting Firm
|
|
31
|
.1
|
|
Certification by Principal Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act
|
|
31
|
.2
|
|
Certification by Principal Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act
|
|
32
|
.1
|
|
Certification by Principal Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act
|
|
32
|
.2
|
|
Certification by Principal Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act
|
|
99
|
.1
|
|
Revised Governance Committee Charter (incorporated by reference
to Exhibit 99.26 to the December 2008
8-K)
|
|
99
|
.2
|
|
Revised Corporate Governance Guidelines dated March 27,
2007 (incorporated by reference to Exhibit 99.3 to the
Companys Current Report on
Form 8-K
filed March 29, 2007)
|
|
99
|
.3
|
|
Compensation Agreement 2009 Form of Board of
Directors Compensation Election Form (Chairman of the Board)
(incorporated by reference to Exhibit 99.1 to the December
2008 8-K)
|
|
99
|
.4
|
|
Compensation Agreement 2009 Form of Board of
Directors Compensation Election Form (Audit Committee Chair)
(incorporated by reference to Exhibit 99.2 to the December
2008 8-K)
|
78
|
|
|
|
|
Exhibit No.
|
|
Exhibit
|
|
|
99
|
.5
|
|
Compensation Agreement 2009 Form of Board of
Directors Compensation Election Form (Non-Audit Committee Chair)
(incorporated by reference to Exhibit 99.3 to the December
2008 8-K)
|
|
99
|
.6
|
|
Compensation Agreement 2009 Form of Board of
Directors Compensation Election Form (Non-Chair Member)
(incorporated by reference to Exhibit 99.4 to the December
2008 8-K)
|
|
99
|
.7
|
|
Compensation Agreement 2009 Form of Board of
Directors Restricted Stock Units Deferral Election Agreement
(incorporated by reference to Exhibit 99.5 to the December
2008 8-K)
|
|
99
|
.8
|
|
Compensation Agreement 2009 Form of Board of
Directors Compensation Cash Deferral Election Form (incorporated
by reference to Exhibit 99.6 to the December 2008
8-K)
|
|
99
|
.9
|
|
Compensation Agreement Form of Time-Vested
Restricted Stock Agreement (incorporated by reference to
Exhibit 99.7 to the December 2008
8-K)
|
|
99
|
.10
|
|
Compensation Agreement Form of Stock Option Award
Agreement for European Union (incorporated by reference to
Exhibit 99.8 to the December 2008
8-K)
|
|
99
|
.11
|
|
Compensation Agreement Form of Stock Option Award
Agreement for Non-European Union Countries (incorporated by
reference to Exhibit 99.9 to the December 2008
8-K)
|
|
99
|
.12
|
|
Compensation Agreement Form of Performance-Based
Restricted Stock Units Award Agreement for European Union
Countries (incorporated by reference to Exhibit 99.10 to
the December 2008
8-K)
|
|
99
|
.13
|
|
Compensation Agreement Form of Performance-Based
Restricted Stock Units Award Agreement for Non-European Union
Countries (incorporated by reference to Exhibit 99.11 to
the December 2008
8-K)
|
|
99
|
.14
|
|
Compensation Agreement Form of Performance-Based
Restricted Stock Units Award Agreement for France (incorporated
by reference to Exhibit 99.12 to the December 2008
8-K)
|
|
99
|
.15
|
|
Compensation Agreement Form of Time-Based Restricted
Stock Units Award Agreement for European Union Countries
(incorporated by reference to Exhibit 99.13 to the December
2008 8-K)
|
|
99
|
.16
|
|
Compensation Agreement Form of Time-Based Restricted
Stock Units Award Agreement for Non-European Union Countries
(incorporated by reference to Exhibit 99.14 to the December
2008 8-K)
|
|
99
|
.17
|
|
Compensation Agreement Form of Time-Based Restricted
Stock Units Award Agreement for France (incorporated by
reference to Exhibit 99.15 to the December 2008
8-K)
|
|
99
|
.18
|
|
Compensation Agreement Section 409A One-Time
Distribution Election Letter (incorporated by reference to
Exhibit 99.16 to the December 2008
8-K)
|
|
|