Ingram Micro 2006 Annual Report Download - page 46

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 April 2005, we announced an outsourcing and optimization plan to improve operating efficiencies within
our North American region. The plan, which is now substantially complete, included an outsourcing arrangement
that moved transaction-oriented service and support functions — including certain North America positions in
finance and shared services, customer service, vendor management and certain U.S. positions in 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), which was in line with our
announced estimates (see Note 3 to our consolidated financial statements).
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.
Acquisition of AVAD
In July 2005, we acquired certain assets of AVAD, the leading distributor for solution providers and custom
installers serving the home automation and entertainment market in the United States, or U.S. This strategic
acquisition accelerated our entry into the adjacent consumer electronics market and improves the operating margin
in our North American operations.
Acquisition of Tech Pacific
In November 2004, we acquired all of the outstanding shares of Tech Pacific, one of Asia-Pacific’s largest
technology distributors, for cash and the assumption of debt. This acquisition provided us with a strong manage-
ment and employee base with excellent execution capabilities, a history of solid operating margins and profitability,
and a strong presence in the growing Asia-Pacific region. We believe this acquisition has been a key to our growing
success in this region.
Acquisition of Nimax
In July 2004, we acquired substantially all of the assets and assumed certain liabilities of Nimax, a privately-
held distributor of AIDC and POS solutions, providing us immediate entry to value-added distribution of AIDC and
POS solutions.
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. We have relied
heavily on debt, trade credit from vendors and accounts receivable financing programs for our working capital
needs. Due to our narrow operating margin, 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 any increase in our overall level of business, changes in our required working capital
profile, or to fund acquisitions.
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