Ingram Micro 2006 Annual Report Download - page 51

Our operating margin slightly increased to 1.4% in 2006 from 1.3% and 1.1% in 2005 and 2004, respectively,
primarily reflecting the increase in net sales and reduction of SG&A expenses while maintaining relatively stable
gross margins during this period as discussed above. Our North American operating margin increased to 1.7% in
2006 from 1.3% and 1.1% in 2005 and 2004, respectively. The increase in operating margin for North America in
2005 compared to 2004 reflects the economies of scale from the higher volume of business, the expansion into
adjacent product markets with higher margins, a broad set of margin initiatives and ongoing costs containment,
partially offset by competitive pressures on pricing and reorganization and other major-program costs incurred. The
further increase in North America in 2006 reflects the reduction of reorganization and other major-program costs, as
well as economies of scale from the higher volume of business. Our European operating margin decreased to 1.2%
in 2006 compared to 1.4% and 1.3% in 2005 and 2004, respectively. Operating margin for Europe in 2006 was
negatively impacted by the implementation of the new warehouse management system in Germany and vendor
consolidation actions, which exerted pressure on gross margin in the first half of the year, as well as a generally
competitive environment in the region. Operating margin for Europe in 2005 was positively impacted by the
increase in net sales and a decrease in operating expenses, partially offset by the economic softness and competitive
environment. Our Asia-Pacific operating margin was 1.3% in 2006 compared to 0.8% and 0.4% in 2005 and 2004,
respectively. The Asia-Pacific operating margins improved in 2005 compared to 2004 primarily due to the benefits
from the successful integration of Tech Pacific, partially offset by the integration costs incurred (approximately
0.3% of Asia-Pacific net sales). The further improvement in 2006 primarily reflects the contribution of the fully
integrated Tech Pacific, as well as improvements and strengthening of our operating model and overall growth in
sales for the region. Our Latin American operating margin was 2.0% in 2006 compared to 1.6% and 1.2% in 2005
and 2004, respectively. Strengthening of our business processes in Latin America from 2004 through 2006
positively impacted operating margin in this region.
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 $55.1 million, or 0.2% as a
percentage of net sales, in 2006 compared to $60.2 million, or 0.2% as a percentage of net sales, in 2005 and
$20.1 million, or 0.1% as a percentage of net sales, in 2004. The decrease in 2006 compared to 2005 primarily
reflects the loss of $8.4 million on the redemption of the senior subordinated notes and related interest-rate swap
agreements in 2005, partially offset by higher interest rates. The increase in 2005 compared to 2004 primarily
reflects a foreign-exchange gain of $23.1 million on a forward currency exchange contract related to our Australian
dollar-denominated purchase of Tech Pacific in 2004, a loss of $8.4 million on the redemption of the senior
subordinated notes and related interest-rate swap agreements in 2005, increased net debt levels primarily associated
with the acquisitions of Tech Pacific and AVAD, and higher interest rates, partially offset by a decrease in losses on
sales of receivables under our accounts receivable-based financing facilities.
Our provision for income taxes in 2006, 2005 and 2004 was $101.6 million, $85.0 million and $43.4 million,
respectively. Our provisions included benefits of $0.8 million, $2.4 million and $41.1 million in 2006, 2005 and
2004, respectively, for the reversal of previously accrued federal and state income taxes relating to the gains realized
on the sale of Softbank common stock in 2002, 2000 and 1999 (see Note 8 to our consolidated financial statements).
Our effective tax rate in 2006, 2005 and 2004 was 28%, 28% and 16%, respectively. The change in our effective tax
rate from 16% in 2004 to 28% in 2005 and 2006 is primarily attributable to the reversal of the previously accrued
U.S. federal and certain state income taxes in 2004 noted above, as well as changes in the proportion of income
earned within the various taxing jurisdictions and impacts of our ongoing tax strategies.
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.”
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